Investing in stocks is investing in a portion of a publicly traded company.
If the company continues to grow, the value of the stock will increase. If the company doesn't operate well, the value of the stock will decrease.
So how do we know if a company is doing well or not?
The answer lies in the earnings report.
An earnings report is a filing made by public companies to report their performance over a specific period. It offers a detailed picture of a company's financial health and operating results.
Generally speaking, public companies will release earnings reports every quarter. The ones released after the first three fiscal quarters are called quarterly reports, also known as Form 10-Q. The ones released after the four fiscal quarters are called annual reports, known as Form 10-K. The 10-K provides a yearly update of the company's business and includes more detailed information than the 10-Q.
For investors, It is important to learn how to read earnings reports.
On the one hand, the earnings report is like the company's medical examination form. By reading this form, investors could gauge the company's financial health and make smarter investment decisions.
On the other hand, the earnings reports will have a huge impact on the company's stock price.
For example, if a company's earnings report is better than market expectations, it may push the stock price higher; If the earnings report falls short of the market expectations, the stock price is likely to fall.
However, there is a lot of content in the annual report, including the company's business, risk factors, and financial statements.
How to read it?
We have summarized four steps to help you read the earnings report.
The first step is to understand the business model, determining its main products and services, what subsidiaries it owns, and what markets it operates in.
The second step is to take a look at the company's profitability. By analyzing the income statement, you can see if the company is profitable and how profitable it is.
The third step is to analyze the solvency of the company deeply. Analyze the balance sheet to see if the company is at risk of bankruptcy.
The fourth step is to analyze the company's cash flow to see whether the company has enough cash for future growth or distribution to shareholders.
Through the above four steps, investors could gain more insights into whether the company is performing well and how well the company runs.
How does the "four-step method" work? In the following videos, we will explain in more detail.