Corporate earnings are a crucial metric that gives investors a snapshot of a company’s financial health. In its simplest form, corporate earnings are a company’s revenues minus its expenses. Earnings are also commonly referred to as net income, and they are calculated per share by dividing the total earnings by the number of outstanding shares.
Investors closely monitor and trade based on corporate earnings reports. Companies that report strong results typically see their stock prices rise, while those that report weak results typically see their stocks sink. During earnings season, traders will often see elevated volume and volatility in the markets.
When analyzing earnings reports, it is important to take into account one-time gains or losses that can artificially inflate or deflate profits. It is also important to look at adjusted earnings that exclude these items. Lastly, it is important to compare earnings over time to identify true growth trends instead of simply reacting to a number that may have been influenced by accounting tricks or stock buybacks.
Earnings reports are required by law to be filed with the Securities and Exchange Commission (SEC). These quarterly earnings reports give investors a glimpse into how well publicly traded companies are performing. Positive earnings reports typically boost investor confidence and can help guide market trends.