Reading through and reporting on a company’s quarterly report can be a challenging project for business journalists. Here are four tips for avoiding some common missteps.
1. Don’t rely on earnings per share
The earnings per share number, while important, can paint an artificially rosy picture. By buying back shares during the earnings quarter, a company immediately improves earnings per share without adding value to the business. Make sure you also look at net income.
2. Listen in
Often an executive will say something on the earnings call that contradicts the numbers in the earnings release. Pay attention to tone as well: If you hear tension between the executives and the analysts, something big may be brewing.
3. Read every page
Wading through a 20-page report takes a big chunk of time, but sticking it out to the end can have a major payoff. A company will most likely try to obscure bad news by burying it in an unlikely section. Have patience.
4. Compare oranges with oranges
Many companies have a similar business cycle year-to-year: There may be an earnings spike in fall (pre-holiday) and a decrease afterward. So instead of comparing the current quarter with the previous one, compare it with the same quarter the previous year. That way you’ll get a true sense of how the business is performing.
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