Earnings Season

Earnings Season

What is ‘Earnings Season’

Earnings season refers to the months of the year during which most quarterly corporate earnings are released to the public. Earnings season generally occurs in the months immediately following the end of each fiscal quarter. This means that earnings seasons fall in January, April, July and October. These lagging dates are due to the pause between when quarter-end periods and the time in which firms are able to release their earnings following their accounting periods.

BREAKING DOWN ‘Earnings Season’

Earnings season is easily one of the busiest times of the year for those who work in and watch the markets as virtually every large publicly-traded company will report the results of their last quarter. Analysts and managers typically set their guidelines and estimates to correspond to specific quarters or fiscal year endings, so the results reported by firms during earnings season often have a big role in the performance of their stocks.

Earnings Season and Earnings Call

During earnings season CEOs and investor relations teams will set up earnings calls, where the public can dial in and listen to the executive team describe the company’s results for that quarter. Topics generally covered during earnings calls include a discussion of financial performance, any management changes or changes in corporate governance, legal involvement, industry changes, and more.

Many different measures and uses of earnings exist, and on earnings calls management usually discusses the context for a company’s results. Some analysts like to calculate earnings before taxes (or EBIT). This is also referred to as pre-tax income. Some analysts like to see earnings before interest and taxes (EBIT). Still other analysts, mainly in industries with a high level of fixed assets, prefer to see earnings before interest, taxes, depreciation and amortization, also known as EBITDA. All three measures provide varying degrees of profitability.

The vast majority of listed companies host earnings calls, though small companies with minimal investor interest may be exceptions. Many companies also provide a phone recording or presentation of the earnings call on their corporate websites following the actual call, making it possible for investors who could not log-in to access this information.

Earnings Season and Intrinsic Valuation

As earnings season approaches, many analysts will conduct intrinsic valuations to determine if the current market price of a company’s stock is over- or under-valued. This informs whether or not to purchase, sell, or hold the stock. Fundamental analysts will look at the qualitative (business model, governance and industry factors) and quantitative (ratios and financial statement analysis) aspects of a business. The discounted cash flow model is one commonly used valuation tool, which relies on a company’s free cash flow and weighted average cost of capital (WACC).

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