In the world of investing, corporate earnings are one of the most important factors influencing stock prices. But what are they exactly, and why do they matter so much?
Corporate earnings, also known as net income, are the sum of all money a publicly-traded company receives for a given period, typically a quarter or fiscal year. This metric gives investors a clear picture of a company’s profitability and ability to invest in future growth. Net income is listed on the company’s income statement alongside revenue and expenses.
Companies are required by regulatory authorities like the Securities and Exchange Commission (SEC) to disclose their earnings on a quarterly basis, giving investors and traders a consistent set of data that they can use to analyze and compare performance across public companies. Earnings reports contain key metrics like revenue, net profit, and earnings per share (EPS), which is calculated by dividing a company’s net profit by its outstanding shares.
The SEC requires that companies disclose their earnings in order to promote transparency and fairness in the financial markets. Investors and traders closely monitor corporate earnings because they provide a direct line of sight into a company’s financial health and potential for long-term success.
Earnings reports also include guidance, which is a forecast of expected revenue and earnings for the coming quarter or fiscal year. Positive guidance often increases market expectations and can boost stock prices, while negative guidance can send stock prices lower as investors anticipate challenges ahead.