How to Read an Earnings Report (Step by Step)

What a company publishes and when

US-listed companies report every quarter. The first document is the earnings release (filed as an 8-K), often published before the market opens or after it closes, followed by a call where management answers analysts' questions. Within weeks the company files the full report with the SEC: a 10-Q for the first three quarters and a 10-K for the year, with the audited financial statements.

In calendars, "BMO" means before market open and "AMC" after market close. ATLAS lists every report date in the earnings calendar and can email you before a company reports.

Step 1: revenue and earnings per share against expectations

Analysts publish estimates before each report, and the average is called the consensus. Revenue (also "sales") is the money the company brought in. Earnings per share (EPS) is net profit divided by shares. If the company reports more than consensus it "beats"; less, it "misses". The size of the gap is the surprise, usually shown as a percentage.

Beating consensus is common, so what matters is the size of the surprise and the next step.

Step 2: guidance

Guidance is what management expects for the next quarter or year. A stock often moves more on guidance than on the quarter just reported. A beat with lower guidance can send the price down; a miss with strong guidance can lift it.

Step 3: quality of the numbers

• GAAP versus adjusted. Companies publish profit under accounting rules (GAAP) and an adjusted figure that removes items such as stock compensation or restructuring. Read the reconciliation table in the release.
• Margins. Gross, operating and net margin tell you if growth is profitable. Compare with the same quarter a year ago, not only with the previous quarter.
• Free cash flow. Profit can be shaped by accounting; cash is harder to disguise. See free cash flow.
• Debt and cash. The balance sheet shows whether the company can pay what it owes.
• One-offs. A sale of assets or a legal settlement can distort the quarter.

Why a stock can fall after good earnings

• Expectations were higher than the consensus. If the price had risen before the report, good news was already included.
• Weak guidance. The outlook disappoints even if the quarter is good.
• Lower quality. Profit rose thanks to a one-off, while revenue or cash flow slowed.
• Selling after a run. Some holders sell on any news after a big rise.

A checklist you can reuse

1. Revenue and EPS against consensus: beat, in line, miss?
2. Guidance: raised, kept or lowered?
3. Margins and free cash flow against a year ago.
4. Debt, cash and any one-off items.
5. The management call: what did they say about demand and costs?
6. How did the price react the next day, and was it already high before?

Where to find the original documents

Every US filing is free on SEC EDGAR. ATLAS links the financials of each company to those filings from its financials tab, so you can check any figure at the source.