Earnings reports are the primary way that publicly-traded companies report financial results. This information covers a specific period, allowing investors, researchers, and others to glean insights into the company’s overall performance.
Most corporate earnings reports paint a positive picture for the company. That’s why knowing how to read this document is an essential skill.
These tips can help anyone understand the information in the report, even if the financial sales pitch tries to lead the reader in a different direction.
What Are the Elements of an Earnings Report?
Each country, state, and jurisdiction may have different reporting requirements for publicly-traded companies to follow. This information is typically a legal requirement with penalties enforced if the processes aren’t correctly followed.
In the United States, all companies must file a quarterly and an annual report called a 10-Q and a 10-K, respectively. This information is released at the end of March, June, September, and December.
Canada uses a system called SEDAR (System for Electronic Document Analysis and Retrieval). An annual information form must be filed.
The quarterly corporate earnings report must typically include the following information.
- Income Statement.
- Balance Sheet.
- Cash Flow Statement.
- Management Discussion Regarding Results.
- Market Risk Disclosures.
Today’s most prominent companies can end up filing quarterly corporate earnings reports of 100 pages or more. The financial statements are not audited, so understanding what they say is up to each reader.
It is not unusual for an earnings report to be released a few weeks after the deadline.
How to Interpret Information from a Corporate Earnings Report
A corporate earnings report contains several pieces of essential information when you know what to look for in the documentation. These tips will help you find and understand this critical data to ensure you see the company’s whole picture.
1. Read the 10-Q or equivalent.
Most corporate earnings documents provide dry information in a condensed and detailed format with an accompanying press release (PR).
The PR summarizes the entirety of the corporate earnings report. It’s a fast way to see the actual numbers and bottom-line data to make better decisions.
If you need assistance in this area, a fee-only advisor can help you interpret this information. These professionals have a fiduciary duty to act in your best interest.
2. Pay attention to the management discussion.
The section on results discussion is typically included by the CEO or CFO – if not both C-suite executives. These decision-makers provide an outlook on the company's current financial issues while incorporating details about crucial factors that impact finances.
You can see information about new products, partners, or purchases in this section. It gives you an idea of where the company is headed while understanding why the results for the quarter are reported as such.
3. Review the information with questions in mind.
Companies can paint a rosy picture about their financial futures, but most shareholders and potential investors want to know about recent performance trends. That’s why a corporate earnings report should always be read with the goal of answering the following questions.
- How was the company’s financial performance over the last quarter?
- What determining factors dictated budgetary success or failure?
- How does the current performance compare to the past earning reports released by the company?
- Where do revenue streams originate, what are the financial strengths, and what goods or services are performing as expected?
- Is there anything that is underperforming?
- Does the company have costs under control, or are they following a plan that intends to achieve this result?
You’ll look for some specific data in the report to answer those questions. That includes the company’s profits, expenses, total revenues, and earnings per share.
4. Pay attention to the informal whisper number.
The whisper number is a guess that traders use when a corporate earnings report differs from what is expected. When rumors swirl around a company that it's doing better or worse, people start guessing at profits. The difference between the report and the estimate becomes this unofficial figure.
Summary of Reading a Company Earnings Report
There is more than one way to read a corporate earnings report. These areas provide an excellent starting point to find and understand what could be in the information that the company releases each quarter.
When comparing the 10-Q vs. the 10-K forms, the structure is similar. Because one is an annual report, it contains more data to review.
Some information isn’t available on this document, so it might be necessary to do some research before finalizing decisions about a company’s financial health. There is no single measurement that assesses this information, which is why analyzing the entire corporate earnings report is necessary.
For additional help, reach out to Boardwalk Wealth Management with any questions you might have. We can get you the answers to make informed investment choices after reviewing each company earnings report.
About Boardwalk Wealth Management: Offer financial planning & wealth management for individuals and businesses in Ann Arbor, Michigan & beyond. The foundation of Boardwalk Wealth Management lies in true dedication to our clients and determining what their wealth means to them. We offer investment management, tax planning, and retirement services. As a fee-only financial advisor, we do not sell financial products or collect commissions. We enjoy working with clients both locally and remotely.