Everything You Need To Know About Earnings
Stock market used as wealth building strategy needs considerable knowledge about earnings. Simply, earnings are profits or net income. Take the revenue venue from selling something minus all the costs to produce that product and, voila, you have earnings! But details of accounting is more complicated…
Earnings Per Share (EPS)
To get the EPS To calculate EPS you take the earnings left over for shareholders and divide by the number of shares outstanding. You can consider EPS as a per-capita way of describing earnings. This is because each company has different number of shares owned by the public. Moreover, comparing only companies’ earnings does not indicate how much money each company made for each of its shares hence; the need for EPS to make valid comparisons.
Earnings Season
Earnings season is comparable to schoolchildren sent home with their respective report cards. Publicly-traded companies in the United States are required by law to report their financial results on a quarterly basis. Most companies follow the calendar year for reporting. However, they have the option of reporting based on fiscal calendars.
The bottom line is that earnings drive stock prices. Strong earnings usually result in the stock price creeps. When a company is in the black, it has 2 options. First, it can enhance its products and develop new ones. Second, it can distribute money to shareholders in the form of a dividend or a share buyback.
