Account Info
Log Out
No matches yet
Operations too frequent. Please try again later.
Please check network settings and try again Refresh Refresh
History record delete
    Quotes All >
      News All >

        How to Read an Earnings Report

        Views 2722023.08.09

        Understanding a company's business model

        What is the first thing to look at when analyzing a company's earnings report?

        EPS? Free cash flow? Or ROE?

        They are all important financial ratios. However, before digging into these numbers, let's first see if the company is worth spending a lot of time analyzing.

        How to know that? The answer is the business model.  A business model is a company's plan on how to make money.

        For example, a grocery store makes money by selling a range of food products. Commercial banks make money by providing and earning interest from loans.

        There are many ways to make money. Direct selling, franchising, and operating brick-and-mortar stores are some of the traditional business models. There are also hybrid models, such as businesses that combine e-commerce with brick-and-mortar stores.

        For investors, it is important to understand a company's business model.

        For one thing, understanding business models may help us make smarter investment decisions. Famous value investor Warren Buffett once said he only invests in a business that he fully understands.

        For another, understanding the business model helps read financial data. For example, different businesses could have different profit margins, which are key performance indicators. Tech companies like Microsoft generally have higher profit margins than retailers such as Walmart. However, it doesn't mean Microsoft is more successful than Walmart.

        Suppose you want to gain more insights into a company's business model.

        What would you do?

        here are two things to look at in a company's annual report that help investors better understand how the company operates.

        They are item 1, "Business", and item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations".

        These two give a full description of the company's business, including its main products and services and which markets it operates in.

        Let's take Apple as an example.

        By reading item 1, we know that Apple is a company that makes money by selling hardware and services. Hardware includes iPhone, Mac, iPad, AirPods, and Apple TV. Services include advertising, cloud services, digital content, and payment services, to name a few.

        In item 7, Apple breaks down its revenue by segment and category, allowing investors to know the exact performance of products and services, and segment operations.

        In addition, item 1 and item 7 also provide information on the company's recent events and the competition it faces to help investors better understand its business.

        Once you've learned how the company aims to make money, you might want to consider researching the company further.

        If you are not interested in the company's business, consider choosing another company to analyze. If you feel that the company has growth potential, you may continue to dig into the company's financials.

        The best place to study a company's financial position is the three major statements: income statement, balance sheet, and cash flow statement.

        In the following video, we will start with the income statement.

        Trade like a pro with moomoo

        Get free stock and start your professional trading today

        Terms and conditions apply right-arrow

        This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal. Moomoo makes no representation or warranty as to its adequacy, completeness, accuracy or timeliness for any particular purpose of the above content.

        Moomoo is a financial information and trading app offered by Moomoo Technologies Inc.

        In the U.S., investment products and services available through the moomoo app are offered by Moomoo Financial Inc., a broker-dealer registered with the U.S. Securities and Exchange Commission (SEC) and a member of Financial Industry Regulatory Authority (FINRA)/Securities Investor Protection Corporation (SIPC).

        In Singapore, investment products and services available through the moomoo app are offered through Moomoo Financial Singapore Pte. Ltd. regulated by the Monetary Authority of Singapore (MAS). Moomoo Financial Singapore Pte. Ltd. is a Capital Markets Services Licence (License No. CMS101000) holder with the Exempt Financial Adviser Status. This advertisement has not been reviewed by the Monetary Authority of Singapore.

        In Australia, financial products and services available through the moomoo app are provided by Futu Securities (Australia) Ltd, an Australian Financial Services Licensee (AFSL No. 224663) regulated by the Australian Securities and Investment Commission (ASIC). Please read and understand our Financial Services Guide, Terms and Conditions, Privacy Policy and other disclosure documents which are available on our websites and Moomoo Technologies Inc., Moomoo Financial Inc., Moomoo Financial Singapore Pte. Ltd. and Futu Securities (Australia) Ltd are affiliated companies.