Quarterly Earnings

Quarterly Earnings (also known as 'Quarterly Results' or 'Quarterly Report') are a company's report card, issued every three months, detailing its financial performance. Think of it as a regular check-up that reveals a company's health over the preceding quarter. These reports are a cornerstone of corporate transparency, mandated by regulatory bodies like the Securities and Exchange Commission (SEC) in the US. The headline figure that grabs all the attention is the Earnings Per Share (EPS), which tells you how much profit the company made for each share of its stock. But the report is much richer, containing vital information on revenues (sales), costs, and overall profitability. For investors, understanding these reports is a fundamental skill, offering a periodic glimpse into a company's operational success and financial stability. It's the raw data from which we begin to understand the story of a business.

A quarterly report isn't just one number; it's a package of crucial financial documents and commentary. While the media might scream about the headline earnings, a smart investor knows the real treasures are buried a little deeper. Unpacking this report is like a mechanic looking under the hood—you get to see how the engine is really running.

At the heart of every quarterly report are three key financial statements:

• The Income Statement: This is the “how much did we make?” document. It shows a company's revenues and subtracts its expenses to arrive at the bottom line: the net income or profit for the quarter.
• The Balance Sheet: A snapshot in time, this statement reveals what a company owns (assets) and what it owes (liabilities), along with the owners' stake (shareholders' equity). It must always balance: Assets = Liabilities + Equity.
• The Cash Flow Statement: Perhaps the most honest of the three, this statement tracks the actual cash moving in and out of the company. It's broken down into operations, investing, and financing activities, and it's much harder to manipulate with accounting tricks than net income.

The story isn't just told in figures. The report also includes the Management Discussion and Analysis (MD&A). This is where the company's leadership team gives their side of the story. They'll explain why the results were good or bad, discuss challenges they faced, and outline their strategy for the future. Following the report's release, the company will typically host an Earnings Call, a conference call where executives discuss the results and take questions from analysts. Listening to these calls can provide priceless insights into management's competence and candor.

While quarterly reports are vital, Wall Street often treats them like a high-stakes, short-term game. The immediate market reaction can be dramatic and, for the long-term investor, often misleading.

Before a company reports, financial analysts publish their predictions for its revenue and EPS. The average of these predictions is called the consensus estimate. The entire news cycle then revolves around a simple question: Did the company “beat” or “miss” the estimate? A company could grow its profits by 20%, but if analysts were expecting 22%, the stock might plummet. Conversely, a company with shrinking profits might see its stock soar if the results were merely “less bad” than feared. This creates a lot of short-term volatility, or “noise,” that can distract from the underlying business reality.

Often, what moves a stock price even more than the past quarter's results is the company's forward guidance. This is management's forecast for the next quarter or the full year. A company can report fantastic results but see its stock tank if it signals that the future looks a little less rosy. This “guidance game” adds another layer of short-term speculation that a value investing practitioner should view with healthy skepticism.

A value investor, in the tradition of Benjamin Graham and Warren Buffett, plays a different game. We're not interested in the quarterly sprint; we're focused on the long-term marathon. Here’s how to use quarterly earnings reports like a true business owner.

Don't get caught up in whether EPS was a penny higher or lower than expected. Instead, zoom out. Compare the results to the same quarter last year (known as Year-over-Year or YoY growth) to account for any seasonality in the business (e.g., retailers who do most of their business in the holiday quarter). Are revenues, profit margins, and, most importantly, free cash flow growing consistently over the last 5-10 years? A single quarter is just one data point; the long-term trend is the story.

Read the full report, not just the press release. Act like a detective. Where did the growth come from? Was it from the core business, or a one-time event like selling a building? Check the balance sheet: are accounts receivable (money owed by customers) or inventory growing much faster than sales? This could be a red flag that the company is struggling to sell its products or collect its cash. The quarterly report is your chance to assess the long-term durability of the company's economic moat. Is it widening or shrinking? The answers aren't in the headlines; they're in the details.