Corporate Earnings
Provided by FinancialContent.com
By Chris Stallman
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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.
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