Corporate earnings are a critical piece of financial information for investors, as they reflect the amount of money that companies make during a quarter. The Bureau of Economic Analysis (BEA) releases quarterly estimates of corporate profits on a regular schedule, and the data is closely watched by investors.
Earnings are calculated as a company’s revenue minus its expenses, and the resulting figure represents how much profit is allocated to each share of stock. Revenue includes any income that a company receives from the sale of goods or services, and it can be compared to previous quarters to reveal growth trends. Operating expenses include salaries, marketing costs, rent, and other business-related expenditures. Net income is a company’s total earnings after deducting interest and taxes. The BEA also reports aggregate earnings for all publicly-traded companies in the United States, which are used as a proxy for overall economic performance.
Investors use earnings reports to evaluate a company’s stability and growth potential, and they are especially important when a company provides guidance or makes other special announcements that may impact market perceptions or prices. For example, when the dotcom boom was in full swing, tech companies were expected to make huge amounts of money, and their stock prices soared as a result. When the companies started reporting disappointing results, however, their stock prices plummeted, and many investors lost money. Generally, investors consider EPS and margins to be the most important metrics when analyzing earnings reports.