What Are Earnings?

Cheat Sheet for earnings:

  • Earnings are a company’s quarterly profits.
    • They are usually expressed as Earnings-Per-Share, or EPS.
  • Analysts who track the company estimate what a company’s EPS will be.

Earning(s)-Per-Share are the company’s profits for the quarter. Wall Street analysts are always trying to predict a company’s EPS. They work at big firms doing research on companies and trying to outdo other analysts in coming up with the most accurate estimate of quarterly profits.

An analyst from Goldman Sachs might say: “I think Apple’s EPS will be $2.27 per share this quarter,” whereas a JPMorgan analyst might predict $2.45 per share. The estimates are often combined into a single number called the “consensus estimate.” Analysts aren’t the only ones doing the predicting. The company does too. When the company does it, it’s called “earnings guidance.” (You can probably guess whose prediction is closer!)

When the company announces its earning(s)-per-share, the stock price often jumps or drops, depending on whether actual numbers beat or missed estimates. Earning announcements are made outside market hours, so everyone has time to digest the news and react before the market reopens.

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/meghan Gardler