Corporate earnings are one of the most important things that investors and traders watch. But what are they exactly, and why do they get so much attention? In this article we will explain what corporate earnings are, how they impact stock prices, and how to analyze a company’s quarterly or annual earnings report.
Earnings, also known as net income, are the company’s total after-tax profits for a given quarter or fiscal year. They are a crucial part of a company’s financial statements, and are often seen as the single most important factor in determining a stock’s price. Earnings are reported on a quarterly or annual basis, depending on the company’s reporting schedule.
Net income is calculated by subtracting all of a company’s operating costs and then adding back in any interest or other non-operating income. It is reported on the company’s income statement, normally found in the bottom section of its balance sheet. A more precise measure of a company’s profitability is earnings per share, which is calculated by dividing a company’s net income by its outstanding shares.
Growing earnings are a sign that a company is successfully developing and selling its products, and that it is managing its expenses well. Ideally, revenue and earnings growth move in tandem, but sometimes they can diverge from one another for a variety of reasons. For example, a company could see its revenue grow faster than its earnings due to higher raw material costs or marketing expenses.