What is a Quarterly Earnings Report?

Quarterly Earnings Report

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Quarterly Earnings Report

A Quarterly Earnings Report is a financial report issued by publicly-traded companies every three months to provide shareholders and the investment community with detailed information about a company’s performance and financial position. As the name suggests, these reports are released on a quarterly basis, typically aligning with the fiscal quarters of the company.

Key components of a Quarterly Earnings Report include:

  • Income Statement: This provides details about the company’s revenues, costs, and profits over the quarter. You’ll find line items such as sales revenue, cost of goods sold (COGS), gross profit, operating expenses, and net income.
  • Balance Sheet: This captures the company’s assets, liabilities, and shareholders’ equity as of the report date. Key line items may include cash and cash equivalents, accounts receivable, property, plant and equipment, accounts payable, long-term debt, and retained earnings.
  • Cash Flow Statement: This statement provides a breakdown of cash inflows and outflows from operating, investing, and financing activities over the quarter.
  • Management Discussion and Analysis (MD&A): This is a narrative section where the company’s management provides context behind the numbers, discussing factors that affected the company’s financial and operational performance, potential risks, and future outlook.
  • Earnings Per Share (EPS): This is a key metric indicating the portion of a company’s profit allocated to each outstanding share of common stock. It’s a widely-watched indicator of a company’s profitability.
  • Guidance: Companies might provide projections or outlooks for future performance, although not all companies do this, and the specificity can vary.
  • Notes to the Financial Statements: These offer additional information and context about the company’s financial statements, accounting policies, and potential contingencies.

Publicly traded companies in the U.S. are required by the Securities and Exchange Commission (SEC) to file these reports (known as 10-Q reports) every quarter. The 10-Q is less detailed than the annual 10-K report but still contains significant detail.

Quarterly Earnings Reports are crucial for investors as they offer insights into a company’s performance, strategy, and potential future direction. They’re often followed by earnings calls, where management discusses the results and answers questions from analysts, which can provide even further context beyond the written report.

Example of a Quarterly Earnings Report

Let’s create a simplified example of a fictitious tech company, “TechNova Corp,” and their Quarterly Earnings Report highlights.

TechNova Corp – Q2 Earnings Report Highlights

Income Statement Highlights (for Q2):

  • Revenue: $500 million (up 15% from Q2 of the previous year)
  • Cost of Goods Sold (COGS): $200 million
  • Gross Profit: $300 million
  • Operating Expenses: $150 million (which includes Research & Development, Marketing, General & Administrative expenses)
  • Net Income: $100 million (compared to $80 million in Q2 of the previous year)

Balance Sheet Highlights (as of end of Q2):

  • Cash and Cash Equivalents: $200 million
  • Total Assets: $900 million
  • Total Liabilities: $400 million
  • Shareholders’ Equity: $500 million

Cash Flow Statement Highlights (for Q2):

  • Net Cash from Operating Activities: $120 million
  • Net Cash used in Investing Activities: $50 million (primarily for acquisitions and equipment)
  • Net Cash used in Financing Activities: $20 million (for repaying debt and share repurchases)

Earnings Per Share (EPS):

  • Q2 EPS: $1.00 (compared to $0.80 in Q2 of the previous year)

Management Discussion and Analysis (MD&A) Extract:

  • The increase in revenue is attributed to the successful launch of our new software suite and increased subscription numbers.
  • Our operating expenses increased due to heightened R&D for our next product and a marketing campaign to support our new software suite.
  • We anticipate continued growth in our subscriber base and are investing in infrastructure to support this growth.

Guidance for Q3:

  • Revenue expected between $520 million to $530 million.
  • EPS forecasted at $1.05 to $1.10.

Following the release of the report, TechNova Corp might hold an earnings call. During the call, analysts may ask about the factors driving increased R&D costs, the company’s view on competition, or more details about the new software suite’s performance.

This example, though highly simplified, showcases the type of information an investor or stakeholder might glean from a Quarterly Earnings Report. In real life, these reports are more detailed, accompanied by footnotes, disclosures, and specific line items across various segments of the business.

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