An earnings report, also called a financial statement, is like a report card for a company. It shows how a company has performed over a given period and provides hints on how it might do in the future.
Publicly-listed companies – the ones you’ll find listed on the stock exchange – are legally required to release this information to the public on a periodic basis.
Learn the typical components of an earnings report and why they may be important to you as an investor.
What to expect in an earnings report
Locally, the Securities and Exchange Commission (SEC) requires publicly-listed companies to issue annual and quarterly financial statements as part of their obligation to keep investors and regulators informed.
You’ll typically find them on the respective websites of each company, the SEC, and the Philippine Stock Exchange (PSE). Big stock brokerage firms also provide these reports.
Some reports may appear more detailed than others. Regardless of the way they look, they should include the following important figures, at the very least:
1. Financial performance
This part basically tells you how much money a company made or lost within a certain period, as well as how much it owes. Here are some items you might find:
- Revenue
This is the money the company made, typically from selling its products or services.
- Expenses
These are items the company spent on to keep its operations going, like payroll and equipment. It also includes any expansion efforts that had to be paid for.
- Net Income or Loss
After subtracting expenses and taxes from revenue, you’ll see whether the company turned a profit (if there's money left over) or faced a loss (if the outcome is negative).
- Other metrics
You’ll also find financial ratios that hint at a company’s profitability. These include earnings per share (EPS), which shows how much profit a company is making for each share of its stock.
Investors also look at debt ratios to get a sense of a company’s ability to fulfill financial obligations.
When looking at financial statements, you’ll see numbers for the current period as well as the preceding period. You’ll be able to check if a company is better or worse off compared to the previous year or quarter.
2. General information and leadership
You’ll also find information that might not be directly related to a company’s earnings, but can have a big impact on its financial health.
These include changes in leadership, how much executives are paid, and any lawsuits the company is involved in. Companies also disclose risks and challenges that may affect their cash flows and business activities.
Why they matter to investors
Depending on the type, earnings reports can run long. Good thing is, companies tend to issue press releases and summaries alongside the reports to highlight important points.
You may wonder if it’s worth your time diving into the numbers and trying to decipher what they mean. Here are a few reasons to care:
1. You’ll get insights into a company’s health
Earnings reports give you a peek into how well a company is doing financially. Is it making money or losing it? Is it growing or shrinking?
These reports can help you answer questions you might have when you’re thinking of investing in a company. You can also check how a company is doing compared to its industry peers so you can weigh your investment options better.
If you already own shares of a company’s stock, these statements can help you decide whether to keep holding onto them or identify if there’s a compelling reason to sell.
Annual reports also tend to come with updates from the company's leadership about what they expect for the future. This can give investors an idea of what’s ahead.
2. They impact the stock market
Before companies release financial reports – during a period known as earnings season – analysts make predictions on the results of the biggest and most influential firms.
When a company performs better than expected, its stock price might go up. If it misses expectations, the stock price might drop.
These reports may cause volatility, but that doesn’t mean you need to act right away. Remember to consider your strategy and know the reasons behind the fluctuations before making a move based on the latest news.
Earnings reports offer a good look at a company’s value, but you should keep in mind that there may be different ways to interpret the data.
It’s best to do your research and consult experts if you need help figuring out what the numbers represent.
