What are Earnings Reports?
Companys release quarterly earnings report to give shareholders an update and understanding of the financial health of their company. These are the primary source for investors and traders that want to perform fundamental analysis on a company. More so than the numbers themselves, investors and traders are looking for the overall quarterly and weekly trend in certain financial variables.
Financial Reports Contained Inside Earnings Reports?
The three main financial statements that are updated quarterly for earnings reports are the income statement, balance sheet as well as the cashflow statement.
The income statement provides a comprehensive and detailed view of a companies revenue and expenses. This allows investors to measure a companies profitability.
The balance sheet provides details an reports for a companies assets and liabilities as well as how much shareholders have invested into the company.
The cashflow statement shows the ins and outs of cash in a company based on operating, investing and financing activities.
Immediate Effect of Earnings Reports.
Earnings reports almost always have an immediate impact on the stock price of a company. This can either be a drastic or a relatively insignificant move depending on the reaction to the numbers released. The two main figures looked at by traders and investors are Earnings per-share and revenue immediately when earnings are released. An example of a drastic rise after a strong earnings report belongs to Netflix when they released their earnings on Tuesday this week (October 18th) shown below in 5 minute candles.
Conclusion
Earnings are usually very volatile and based on analyst and general market predictions. From a numbers perspective the reports can be good and cause a stock to fall and they can be bad and cause a stock to rise. It is all based on the markets reaction to whatever information was released in the report. This is why trading before the reports can be very dangerous, especially options so it is recommended to not purchase or sell shares/options around this time unless you are holding for the long term!
Your Fellow Stock Hackers
Erwin and Cherry
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That’s all for now.
Happy trading and investing,
Your fellow Stock Hackers,
🍒Cherry & Erwin
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