What are earnings?

Cheat Sheet:

  • 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 earnings will be.

 

Earnings are the company’s profits for the quarter. Wall Street analysts are always trying to predict a company’s earnings. 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 earnings.

An analyst from Goldman Sachs might say: “I think Apple’s earnings will be $2.27 per share this quarter,” whereas a JPMorgan analyst might predict earnings of $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 earnings, the stock price often jumps or drops, depending on whether actual earnings beat or missed estimates. Earnings announcements are made outside market hours, so everyone has time to digest the news and react before the market reopens.

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