Every stock investor knows the earning season is critical for companies and their shareholders. It’s at this time businesses give shareholders an outlook on the economic and business conditions of the company.
Businesses report their earnings quarterly, a disclosure that acts as a report card that evaluates the company’s performance.
For example, stockholders can expect META quarterly earnings on February 1, 2023. In this report, META will disclose its profits and revenues, including other performance metrics. But why is it necessary to pay attention to the next earning dates, an investor may ask?
1. Company earnings affect the stock’s Price
The next earnings report is a determinant of future stock prices. A decline in quarterly earnings is likely to cause lower stock prices. On the other hand, increased earnings will boost stock prices. Experts advise investors to monitor companies earning growth to determine if it is sustained or not. Sustained growth correlates to higher stock prices in the long term.
For shareholders, buying stocks entails making money through profits. Companies making profits can decide to reinvest the profits or pass the money to the shareholders as dividends. For a re-investment, an investor trusts the company to use the profits for its expansion, hoping to earn higher dividends in the future.
If the company decides to pay dividends, investors receive their cash immediately. On the other hand, poor earnings predict future fall in stock prices. Under such circumstances, experts advise investors to withdraw their shares.
2. Company’s Strategic Report Release Timing
Traditionally, companies will disseminate poor earnings reports when they suspect only a few people are watching. For example, companies will release their reports when hundreds of other firms are making their reports.
On such days, the markets are distracted, implying the presence of a low level of investor investigation.
Such companies reduce scrutiny on their financial reports. To cover up the losses, some companies simultaneously announce positive developments with bad news.
For example, they may announce the acquisition of a reliable customer, the opening of a store, a product launch, or the placement of a large order. The idea is to assure shareholders that things aren’t bad. Thus, you must pay attention to the information the company releases in the upcoming earnings report.
3. Deception Through Non-GAAP measures
Federal law requires generally accepted accounting principles, GAAP, to apply in the preparation of earnings reports. However, poor-performing companies use the non-GAAP to add in or strip out certain values. Such firms make their presentations based on their core operations and eliminate one-time costs. These measures image the company in an exaggerated positive manner.
For example, investors must determine if the released company earnings report entails earnings before interests and taxes, EBIT, which is misleading. Consider a company operating on debt. Such a business will have a significant interest expense. In this case, the net income report will be the complete reflection of the company’s performance, while EBIT will exaggerate the Company’s image.
Another non-GAAP measure used to mislead investors during the earning seasons is cash flow. Cash flow is the total cash flowing in and out of business over a given period. Positive cash flow implies that a company has enough liquid assets convertible to cash for business financial obligations.
However, if a company sells an asset to inflate its cash entry, the effect will be positive on cash flow but will reduce the company’s capital. Thus investors must remain alert of companies using these non-GAAP measures to impress their shareholders.
4. Understand a Company’s Future
To understand the future of a company, investors must pay attention to its earnings report. As an investor, your shares are saving for future goals. Thus, you’re not investing in losing money. Through the report, you can foretell how the business will perform in the future market.
What you will see in the next quarterly earnings report will be a review mirror. Analysts consider it essential to evaluate a business’s future, particularly with inflation nearing its highest levels.
In addition, earnings reports will tell you if you need expert guidance to face the uncertainty in the market. Therefore, you must pay attention to your company’s earnings report if you care about the fate of your investment.
As an investor, paying attention to your next earning dates is an essential practice. From the earnings report, you can tell if a company is making profits or not, which determines future changes in stock prices. In addition, you gain insights that help in analyzing the fate of a company’s future.
Furthermore, it’s critical to pay attention to details to identify exaggerated company earnings reports. Deception occurs when companies use non-GAAP measures to compile the reports.
In addition, some companies practice strategic report release timing to avoid scrutiny of their performances by the shareholders.
Thus, the next earning dates demand your paramount attention, as failure to do so is likely to cost your investment, whether you’re currently making profits or not.