Earnings articles are incredibly timely and important for business. As soon as the market closes at 4 p.m. EST, investors are anxiously searching for coverage of whichever earnings were scheduled to release that day. Due to this, and the sheer volume of companies out there, covering earnings is increasingly being done by robot reporters, which can instantly create reports with the most important figures from the complex quarterly financial statements.
This frees up time for journalists to create more in-depth, analytical, and contextual stories around earnings. As we are currently in the midst of Q4 earnings being released we wanted to give you some elements to understand and pay attention to in these robot-generated reports.
The profit or “bottom line,” is the money left over after all expenses, such as taxes, have been paid. This figure is typically listed in the format “earnings per share (EPS)” and you can calculate a company’s EPS by dividing its earnings by the number of outstanding shares.
Consider whether a company’s EPS was in line with, missed, or beat analyst estimates to allow investors to see whether the company is underperforming or outperforming expectations.
Revenue, or “top line,” is the amount of money earned by a company’s normal business operations. With revenue, you want to be sure to tell readers how much the revenue increased year-over-year. Compare revenue to the same quarter from the previous year because much of business is cyclical. For example, the Christmas quarter for a retail company is most likely going to outperform the other quarters of the year.
Like with earnings, let readers know how a company’s revenue stacked up to analyst estimates. A company’s $3 billion quarterly revenue may seem impressive until you realize analysts were expecting it to hit $4 billion in revenue.
Free Cash Flow
Free cash flow is a company’s cash left over after subtracting capital expenditures from its cash from operations. This may sound complex, but the thing to know is that investors use it to determine exactly how much money a company has left over to spend on dividends and reinvesting in its business.
A company may seem healthy from its revenue or earnings, but debt often reveals a black spot on a balance sheet if a company is using debt to finance its growth. While many new companies have to take on debt, there are ways to tell if a company has gone overboard with its debt by calculating its debt-to-equity ratio. You can calculate this figure by dividing the company’s total debt by the value of its outstanding shares. A high debt-to-equity ratio typically indicates a riskier company.
Not all companies have users but, for those that do, it’s a vital part of its quarterly health report. It’s not just social media companies like Facebook and Twitter that track users; payment apps and retail platforms often report users as well. These figures help investors track whether a platform is growing in popularity or fading away. For some companies, if they don’t have users, they have nothing.
Let readers know how much users grew year-over-year in the same quarter of the previous years vs. the most recent quarter. Is year-over-year growth is decelerating or accelerating?
Essentially, what is the company predicting its next earnings report will look like in four months. Guidance tells investors what a company is anticipating in the next quarter. This is beneficial for the company because it can temper expectations if it is expecting headwinds over the next period. Analysts will often change their target estimates after reading a particularly good or bad guidance report from a company.
If you’ve just read your first earnings report all the numbers may seem overwhelming. Earnings reports are tricky because messing up just one figure can seriously harm your reputation as a reporter, as well as the reputation of your news organization. And while investors should be reviewing quarterly reports themselves, some may be making decisions based off of your reporting.
So just remember to read carefully, check and re-check your numbers, and read as many earnings reports as you can.