Earnings Reports – Key Financial Data to Your Investment Decision Making
Earnings are basically the financial benefits of the performance of a business. The company earns money from its assets and activities and gives the profits to its stock holders. Earnings refers to the actual cash outflow that a business generates during a period of time. Some other more technical terms used for accounting purposes are EBIT and EBITDA.
Earnings per share (EPS) is the company’s profit after tax. Earnings per share or EPS is the profit earned by the company in a given quarter. It is calculated by taking the weighted average price paid per share by stockholders, i.e., the total number of shares that were outstanding on the day of the determination. Many companies use the book value of their stock as their measurement of earnings because it allows them to determine the worth of their tangible assets or equity as of the last day of the calendar quarter ending the last trading day of that particular year. In order to determine the value of their equity they make an estimate based on the sales of the firm during that period and average all sales figures over the last three years. If a company has unvested shares, these will be subtracted from the gross proceeds and the result will be the value of equity.
Management’s income statement, P&L, and statement of cash flows provides the financial information necessary to assess and improve the health of the company. Earnings reports help a company determine the profitability of its product or service and to forecast future earnings. It can also indicate the extent to which financing has been received and utilized. Earnings surprises, the difference between actual and expected earnings, affect the company’s ability to meet its short and long-term debt obligations.