Master the Markets: Daniel Will's Rapid Understanding of Stock Financials

The U.S. stock financial reports contain a wealth of information about the operational status of companies. Due to the frequent use of professional terminology, many newcomers to the U.S. stock market express difficulty in understanding. This article will, from the perspective of explaining professional terms, introduce relevant knowledge about U.S. stock financial reports and specifically highlight which data in the reports should be focused on. Daniel Will teaches how to understand U.S. stock financial reports.

Earnings Season: Divided into four quarters each year, a significant portion of U.S. stock companies releases financial reports in the weeks following the end of each quarter. The majority of companies reporting during this time frame constitute the earnings season, which starts about a week and a half after the end of each quarter and continues until the end of the month. During the peak period, there can be hundreds of companies releasing reports daily.

Earnings Report: Every publicly traded company must release a financial report (also known as the 10Q form) every three months, filed with the U.S. Securities and Exchange Commission (SEC). The report must include revenue, profits, expenses, and other financial details for the preceding three months, providing shareholders insight into the company’s performance.

How to Understand U.S. Stock Financial Reports:

Revenue, Sales, or Top Line: The total income for a company in each quarter is a crucial metric. When assessing the financial health of a company, revenue is often considered a more critical indicator than profits, especially for early-stage or non-profitable companies.

Earning, Profits, or Bottom Line: This data, indicating the amount a company earned in the last quarter, is of primary concern to most shareholders and potential investors.

EPS (Earnings Per Share): EPS is often considered a reflection of a company’s operational results. Investors use this data to gauge the profitability of common stock, assess investment risk, evaluate a company’s earning capacity, and predict growth potential, thereby making relevant economic decisions. Financial media typically reports EPS data.

Estimates, Beat and Miss: Analysts hired by Wall Street firms establish market expectations based on a company’s revenue and EPS data to determine stock pricing. Beating market expectations usually results in a stock price increase, while falling short leads to a decrease in value.

Guidance: Most companies release performance estimates for the next quarter or even the next year in their quarterly reports, known as guidance. This information, not required by financial reports, often has a greater impact on stocks than actual financial performance.

Whisper Number: Traders make their profit predictions for a company’s performance in a specific quarter, often deviating from consensus estimates. Divergence from consensus estimates (whisper numbers) can cause unusual stock reactions to financial reports.

Before releasing financial reports, companies publicly or privately disclose “earnings expectations” to analysts. However, to present even mediocre quarterly performance as “exceeding expectations,” these expectations are often set at low levels. Investors understand this, considering whisper numbers as the true expected data, explaining why stock prices may decline even when a company’s performance clearly “exceeds expectations.”