The Elements Of Trading Earnings Reports

Step 1In order to estimate the earnings per share (EPS) of a corporation, you need to first be able to find the income of the company. The best place to search for this is the corporation’s 10-K or 10-Q. These are it’s annual reports and quarterly reports, respectively. The Securities and Exchange Commission requires companies to file financial statements every quarter, so you can then use these to see exactly how much the company makes. To find the earnings that year or quarter, find the income statement. In a 10-K, the income statement is in Item 8 from the table of contents.

These earnings reports are typically not published exactly at the expiration of the calendar month of any given quarter but instead are published a full month after the current quarter has ended. This makes most companies publish their financial statements in January, April, July and October. Thus earnings season happens quarterly and falls on these months. The general rule determining what a company should consider when setting their earnings report dates is typically based the rate of activity. The end of the fiscal year is usually characterized by low activity and this makes it possible for companies to even capture the full earnings for the year without fear of leaving potential numbers emerge from the bottom line. This has made most companies experience overlaps between calendar years and financial years.

And, to add to the discussion…

Earnings per share is a great metric for valuing stocks, similar to the price to earnings ratio. It gives an all-else-equal comparison between two stocks in the same class, although it needs to be used carefully; it is only truly applicable for businesses that have the same share price. Why is that? If one company trades at $20 per share while it’s competitor trades at $300 a share, then most probably the competitor will have an higher EPS metric. But, if they both are trading at about $20, and the firm has an EPS of $0.10 While the competitor has an EPS of $1.00, Then obviously you might want to consider buying the competitor.