What Is a Quarterly Earnings Report?
A quarterly earnings report is a filing made by public companies every three months to report on their recent financial performance. Quarterly earnings reports include items such as net income, earnings per share, earnings from continuing operations, and net sales. Stock analysts and investors use quarterly earnings reports as one way to gauge the financial health of the company and its prospects for the future.
- Public companies file quarterly earnings reports to detail their latest performance.
- A quarterly earnings report contains information on the company's net income, earnings per share, earnings from continuing operations, net sales, and other data.
- Fundamental analysts look for trends in the data from the current and previous quarterly reports.
- When a company's quarterly earnings report fails to live up to expectations, its share price—and sometimes the entire market—can be affected.
Understanding the Quarterly Earnings Report
Quarterly earnings reports provide an update of three financial statements: the income statement, the balance sheet, and the cash flow statement. That information includes an overview of sales, expenses, and net income for the most recent quarter. The report may also provide a comparison to the previous year and possibly to the previous quarter.
Some quarterly earnings reports include a brief summary and analysis from the CEO or other company spokesperson.
The quarterly earnings report is generally backed up by the company's Form 10-Q, which companies must file with the Securities and Exchange Commission each quarter for the first three quarters of the year. (At the end of the fourth quarter, companies file a 10-K form, reporting annual performance.) The 10-Q is more comprehensive in nature than the quarterly earnings report and provides additional details. It is usually published a few weeks after the quarterly earnings report.
Fundamental analysts pay particular attention to the trend in ratios gleaned from quarterly earnings reports over time, rather than to individual data points from the latest report. One of the most important numbers for these analysts is earnings per share. Some companies post quarterly earnings reports going back several years on their websites.
The Impact of Quarterly Earnings Reports
The announcement of quarterly earnings for a stock, particularly for widely followed large capitalization stocks, can move the overall market. An individual stock's price can also fluctuate wildly on days when the company's quarterly earnings report is released.
For better or worse, a company's ability to beat earnings estimates projected by analysts or by the firm itself can be more important than its ability to grow earnings over the prior year. If it fails to meet or exceed the estimates published before the release, that may result in a sell-off of the stock.
In capital markets, it is all about market expectations since many believe expectations are already reflected in stock prices, following the efficient markets theory.
How Do You Know When a Company Will Release Its Quarterly Earnings Report?
You should be able to obtain the exact date and time for a quarterly earnings report announcement from the company's investor relations department.
What Is Fundamental Analysis?
Fundamental analysis attempts to determine the intrinsic value of a particular stock by studying both its unique financial data and trends in the larger economy. In that way, fundamental analysts hope to identify stocks that are trading at lower or higher prices than their actual worth.
What Is the Efficient Markets Theory?
The efficient markets theory—also known as the efficient markets hypothesis—maintains that all the information that is known about a particular stock at a given time is already reflected in its share price or will be in short order. For that reason, adherents of the theory say it is all but impossible for any investor to consistently outperform the market. Efficient markets theory is often cited as a major argument for investing through index funds.
As Princeton economist Burton C. Malkiel, author of the influential book A Random Walk Down Wall Street wrote in a 2003 paper, "Many of us economists who believe in efficiency do so because we view markets as amazingly successful devices for reflecting new information rapidly and, for the most part, accurately."
The Bottom Line
Quarterly earnings reports are filings made by public companies every three months to provide data on their latest performance. Earnings reports are important to stock analysts, investors, and others as a way of assessing a company's current financial health and its performance over time. A disappointing earnings report can have serious consequences for the company's share price and, sometimes, for the entire market.