Understanding Earnings Calls and Releases
Investors in the stock market make research on the kinds of companies, stocks, and assets to invest in. Many public companies make this information available to the investing world. These moments, called earning calls, usually happen quarterly and provide an opportunity for the companies to present their performance so far and project their future performance. Earning calls are not a requirement and some companies don’t release earnings calls. Some cancel them if there’s a need for a larger management call.
The importance of Earnings Calls
Financial analysts utilize earning calls to understand companies better. It offers a platform for them to participate and ask questions. Individual investors, especially those who are new to investing can also utilize this platform to understand public companies better. The actual result of earning calls can indicate how the company is performing and provide key insights for an investor’s confidence.
Earnings calls provide some of the most easily available information about a company. They give investors a view into how the company is run and who runs it. For example, by examining the response of leadership when asked to provide key pieces of information, investors can make up their minds on whether to trust the veracity of their claims or the direction in which the company is being projected to the ego.
The Structure of Earning Calls
Earning calls follow a certain structure or format. This generally involves an introduction, overview, details, and a question-and-answer session. Typically, earning calls may last between 45 minutes to an hour. Sometimes, they last longer.
The earning call begins with a legal caveat emptor disclaimer known as a safe harbor statement to shield the company from liability in case their predictions do not materialize. During the introduction, the company sells itself by delivering information about the company in a way that boosts the company’s image and inspires investor confidence. This segment can also help investors acquaint themselves with the company and how they have positioned themselves in the market.
A detailed financial information section includes more numbers and figures and a bunch of technical and accounting jargon that could confuse ordinary investors.
The last part is the question-and-answer segment that allows investors and analysts to ask questions that probe into the finances of the company. The company decides which questions they answer, how they answer them, and in what order the questions are answered. Therefore, not all questions would get answered and some questions would be answered with a key understanding of who is asking them. For new or inexperienced investors, this is a great learning opportunity.
Listening to Earnings Calls
There are generally accepted principles of accounting that give specific metrics to judge companies’ performances. This includes their revenue. However, note that companies might highlight some metrics that are not generally accepted as they put the company in a more favorable light. Learn to read in between the lines and gauge for yourself if the information given is trustworthy. The company might provide “guidance” to listeners which is a prediction of its future performance. This usually comes with disclaimers and can be vague but can offer a good insight into the company’s future.
Earnings Releases
Earnings releases contain the information to be reported at the earning call. They are released sometime before the earning call. The companies may choose to share slides containing summarized metrics to help investors visualize the report during the earning call.
Conclusion
Earning calls and releases alongside mandated, publicly available information like quarterly and annual Securities and Exchange Commission forms provide investors with an informed position on the companies they intend to invest in. Educating yourself on earning calls can help you invest wisely.
