Corporate earnings are a critical measure of company financial health. They are calculated as company revenue minus company expenses, and in turn are an important indicator of economic growth. Companies use their earnings to reinvest in the business, expand operations, pay dividends to shareholders, and repurchase stock. As earnings grow, they incentivize companies to continue spending money and growing their businesses, and as a result, they contribute to overall economic growth.
Investors and analysts monitor corporate earnings reports on a quarterly basis to assess the financial health of publicly-traded companies. These reports include operating margins, earnings per share (EPS), and guidance from management. Positive guidance often drives stock prices higher, while negative guidance can cause stocks to decline.
There are many different ways to calculate corporate earnings, but at their core, they all represent how much a company makes during a specific period minus all of its costs. Earnings can also be referred to as net income, profit, bottom line, or even cash flow.
Earnings are a key indicator of a company’s financial health and a leading driver of stock prices. However, not all investors are aware of the many nuances associated with calculating and interpreting corporate earnings. In this article, we will provide a brief overview of corporate earnings and offer some tips to help investors make more informed investment decisions.