Burton-Wilde's Tips for Deciphering U.S. Stock Financial Reports

Burton-Wilde's Tips for Deciphering U.S. Stock Financial Reports

U.S. stock earnings reports contain a wealth of information about corporate operations, but many newcomers to U.S. stocks find them difficult to understand due to the use of professional lingos. This article will introduce U.S. stock earnings reports from the perspective of explaining professional terms and focus on which data in the reports should be paid attention to. Burton-Wilder will teach everyone how to understand U.S. stock earnings reports.

Earnings Season: A year is divided into four quarters, and a large part of U.S. stock companies publish their earnings reports within a few weeks after the end of each quarter. The period when most companies release their earnings reports constitutes the earnings season, starting about a week and a half after the end of each quarter and continuing until the end of the month, with hundreds of companies reporting daily during peak periods.

Earnings Report: All publicly traded companies must publish an earnings report (also known as the 10Q form) every three months and file it with the Securities and Exchange Commission (SEC). The report must include the company’s revenue, profit, expenses, and other financial details for that quarter, making them public for shareholders to understand the company’s performance.

How to Understand U.S. Stock Earnings Reports:

Revenue, Sales or Top Line: The total income of a company in each quarter is an extremely important criterion. In judging the financial health of a company, revenue is often considered a more critical indicator than profit, especially for companies in the early stages of development or those not yet profitable.

Earning, Profits or Bottom Line: This is the data most shareholders and potential investors are concerned with, namely the amount of money the company made in the last quarter.

EPS (Earnings Per Share): EPS is often a reflection of a company’s operational results. Users of this information, such as investors, use it to measure the profitability level of common stock and assess investment risks, evaluate corporate profitability, and predict growth potential, thus making related economic decisions. Financial media often report EPS data.

Estimates, Beat and Miss: Analysts employed by Wall Street companies make market expectations based on a company’s revenue and EPS data, thereby pricing the stock. If the rating result beats the market’s average expectation, the stock price will rise in the absence of other conditions; conversely, if it misses, the stock will lose value.

Guidance: Most companies release their performance estimates for the next quarter, or even the next year, in their quarterly reports. This is not mandatory data required by the report, but its impact on the stock is often greater than the actual earnings performance. For example, if a company’s report shows revenue and profits better than expected, but the stock drops immediately after opening, it is likely due to lower-than-expected guidance. After all, the market is more interested in prospects, making the company’s performance in the previous quarter seem less important.

Whisper Number: When there are many rumors that a company’s performance is better or worse than expected, traders will make their own predictions about the company’s profit situation. These predictions, which differ from the consensus numbers, are known as whisper numbers. Whisper numbers different from consensus expectations among traders often cause abnormal stock reactions to earnings reports.

Before the earnings release, companies will publicly or privately release “performance expectations” to analysts. However, to make even mediocre quarterly results appear “above expectations,” these “performance expectations” are often set at very low levels. Investors understand this, so for them, whisper numbers are the real expectations, explaining why sometimes a company’s performance is “above expectations” but the stock price still falls.