For companies publicly traded on the stock market, quarterly earnings reports are a critical window into how well a business is performing and its long-term growth potential. While earnings reports can include a host of metrics, the most important numbers are revenue, cost of goods sold, operating expenses, and net income. These numbers are the result of subtracting a company’s total costs and revenues from its actual profits, and provide an accurate picture of profitability and stability. During “earnings season,” which runs from the end of one quarter to the beginning of the next, many companies also provide forward guidance and other special announcements that can drive market reactions.
Revenue, earnings, and margins are crucial for investors and lenders to analyze and understand a business’s health. A business with strong revenue growth may indicate a growing customer base and sales volume, but it’s equally important to have healthy profit margins to cover operating costs and ensure a steady stream of liquidity for the company. A business with a large amount of revenue growth might see its profit margins shrink as it invests in new projects or pays higher salaries and marketing costs to grow sales.
While the most basic metric is net income, there are several other terms often used by financial experts to analyze a company’s profitability such as EBIT and EBITDA (earnings before interest and taxes and earnings before interest, taxes, depreciation, and amortization). The Bureau of Economic Analysis releases aggregated corporate earnings data each quarter that is utilized by investors, Congress, policymakers, businesses, and academics to help make informed decisions that impact the economy.