It can help to think of an earnings call like a report card for a business. Just like how students explain their report cards to their parents at the end of a semester or school year, public companies will meet with investors, analysts and the media to discuss their recent performance. It’s fair to say both audiences are pretty intimidating.
Public companies are corporations that sell ownership shares in the capital market. They will use earnings calls to explain their finances and performance over a specific period of time like the past three months. They will often discuss highlights in their 10-Q report (a quarterly report) or their 10-K report (an annual report). The U.S. Securities and Exchange Commission (SEC) requires both types of reports from public companies and will review the reports to ensure companies are in compliance with their standards.
The 10-K is an annual report and gives a much more in-depth account of the company than the quarterly report does. A company’s 10-K provides the public with key information about the company, including but not limited to: a description of the company, risk factors the company faces, company properties, legal issues, executive compensation, financial statements and the management’s discussion and analysis of the company.
The 10-Q provides a more general overview of the company’s financial performance. It compares the company’s most recent quarter to the quarter preceding it, and the quarter a year earlier. This report, unlike the annual report, is generally unaudited, meaning an external source does not evaluate the information and present an opinion on it.
What can investors get out of an earnings call?
An earnings call usually happens on the same day that the company’s earnings report is released. Earnings calls happen four times a year, and top company executives like the CEO and Chief Financial Officer participate in the call. Investors can listen in by going to the Investor Relations section on a company’s corporate website that is specifically dedicated to investors.
Investors will use the information shared on an earnings call to decide if they want to buy or sell shares of the company, while analysts will use that information to form a fundamental analysis of the company, which examines all aspects that could influence the company’s value.
At the end of a call, executives will often take questions from analysts. During this time, someone on the call might ask a question regarding news about the company or a clarification about a specific financial number.
To make smart investing decisions, it’s crucial to participate in these calls as part of your research process. Find the time to research companies and learn about their industry in general before investing. Take advantage of the wealth of information companies provide, whether that be through listening in on earnings calls, or diving into the 10-Ks and 10-Qs yourself.
To learn more about investing, check out these articles:
https://www.nasdaq.com/articles/how-to-read-an-earnings-report-2021-04-23
https://www.nasdaq.com/articles/new-to-investing-here-are-your-first-3-steps-2020-08-10
https://www.nasdaq.com/articles/what-to-know-before-you-invest-in-stocks-2020-01-10
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Eleanna Eimer
Eleanna Eimer is a rising senior at Northwestern University. She is majoring in journalism with minors in both Business Institutions and Legal Studies. Eimer has served as an editor and contributing politics reporter for Northwestern’s student publication, North by Northwestern.
She has interned at WGN, Chicago Lawyers’ Committee for Civil Rights Under Law and the Medill Investigative Lab. During her time at the Medill Investigative Lab, she had three stories published in The Washington Post as part of a larger project titled “51 lost lives: A portrait of the pandemic’s tragic toll in America’s nursing homes.”
She currently serves as a content intern on Nasdaq’s digital team.