Corporate earnings announcements and annual reports are a must as per law. This is to keep investors informed about the company’s operations and financial performance. In this section, we will learn about these reports, how to understand them and why they are important to the investor.
WHAT ARE COMPANY EARNINGS?
Companies undertake activities that produce a good or service. This is sold to customers who pay a certain amount of money for it. The total amount the company receives is called 'revenue'. A company also incurs expenses on employees, utility bills, costs of production and other operating expenses.
Once you deduct these expenses, the surplus left is the company’s earnings, or net profit. Usually, income earned from operations is the key source of profits. Many companies also earn additional income from different kinds of investments.
Investments generate income for businesses by way of either interest on loans, dividends from other businesses, or gains on the sale of investment property.
Investments generate income for businesses by way of either interest on loans, dividends from other businesses, or gains on the sale of investment property.
Thus, company earnings are the sum of income from sales or investment left after the company has met its obligations.
WHAT ARE QUARTERLY AND OTHER FINANCIAL REPORTS?
Every three months, every company has to submit details about its financial performance. These are called quarterly reports. In addition, companies may also provide with special reports called statistical supplements. These provide investors with additional financial information. These, however, are not as comprehensive as the annual report.
Thus, quarterly reports are very similar to the annual reports, except they are issued every three months and are less comprehensive. These are filed with the stock exchange, which then makes it available to investors.
WHY ARE EARNINGS IMPORTANT TO YOU AS AN INVESTOR?
As an investor who holds shares of the company, you have part ownership of the company. You are thus entitled to get a portion of the company's profit as dividends. Until you sell the stock, this is your primary source of income as an investor from the stock holding. As a result, if the company does well and earns more profit, you receive more as dividend. Not just that, it will also drive up the inherent value of your shareholding. This means you earn more returns.
Sometimes, when a company is in the initial stages of growth, it may choose to reinvest its earnings for operations and expansion. While you are temporarily at a loss as an investor, this increases the likelihood that you will get higher dividends in the future.
Company earnings are important to you, even if you hold its bonds. This is because, when you lend money to the company by investing in its bonds, the company uses part of its earnings to repay you through interest payments. The greater the company’s earnings, the more secure you can be that you will receive your interest payments. So, company earnings are important to you because you make money when the business you invest in makes money.
Company earnings are important to you, even if you hold its bonds. This is because, when you lend money to the company by investing in its bonds, the company uses part of its earnings to repay you through interest payments. The greater the company’s earnings, the more secure you can be that you will receive your interest payments. So, company earnings are important to you because you make money when the business you invest in makes money.
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