Corporate Earnings

If you've been involved with the stock market for at least a couple months, you've probably heard talk of such things as earnings reports and whisper numbers. Over the last couple years, corporate earnings have become very important to many short-term as well as even long-term investors through numerous internet websites and television shows that report them.

As its name suggests, corporate earnings are basically how much a company made or lost during a given amount of time. This is found by subtracting all of their expenses, spending, and so on from their revenues.

Investors like you and I find out information about companies' earnings through their earnings reports. These reports are distributed quarterly so investors can compare the company's performance to that of three months ago. At the end of the year, the earnings are then added together to calculate the annual earnings per share.

Corporate earnings are given to investors in per-share form. This method is really helpful because it gives investors a standard for comparing different stocks with each other and eliminates the need to remember large total earnings figures. Per-share earnings are found by taking a company's total earnings and dividing it by the number of shares outstanding. So if a company made $100 million one year and they have 500 million shares of stock, that means the company made $0.20 per share.

When a company reports their earnings, the public usually has an idea of what to expect. The reason for this is because analysts usually review the company and tell us how much they expect the company to make. This number is then published as the earnings estimates figure.

People have a way of rewarding companies that do well and punishing those that do poorly. For example, if a company says that they beat the earnings estimates, the stock usually rises. And when a company fails to meet the estimates or warns that they might not in the future, their stock usually declines quite a bit.

But analysts aren't the only ones these days that are giving their opinion of corporate earnings. Whisper numbers have become quite popular lately. They are basically how much insiders and other investors think the company will make or lose. While they seem harmless, they have had some negative effects. Whisper numbers are becoming so accepted that it is becoming harder for companies to live up to people's expectations. We urge you not to get too caught up in these whisper numbers because they are more for short-term investors. For long-term investors, regular earnings estimates give you a much more reasonable outlook for the company.

The main purpose of corporate earnings is to help investors decide how well the company is growing by comparing it to the company's earnings in the past. For example, if a company reported earnings that were 50% higher than the previous year, you would assume that that company is growing very quickly.

For a young investor, corporate earnings are great ways to determine the health of our long-term investments. By looking at a company's short-term performance, you can sometimes get an idea of where the company is headed in the future. And keeping your long-term view on companies is one of the keys to success.