Earnings announced

What are Corporate Earnings?

Generally, earnings mean the income received or earned from the recipients in return for the goods or services provided to them. The recipient of such earnings can be an individual, a group of individuals, or businesses. However, when considering corporations listed on the Indian stock exchanges, the term “earnings” becomes more important and impactful.

In definition, corporate earnings refer to the net income earned or bottom line of companies. These corporations earn their income by providing their goods and services to customers throughout a financial year. The core metric to measure corporate earnings is profitability.

This metric is of great importance to investors when judging the performance of a listed company during a particular period, typically 1 year or a quarter. Profitability is basically a measure of profits companies earn after deducting all necessary expenses and taxes from their gross revenues.

An important thing to note here is that corporate earnings are not only important to employees or management, but they are also closely watched and analysed by investors, traders, and other stock market participants.

• Corporate earnings refers to profitability, also known as a company's bottom line during a year.
• The earnings announcements are awaited and closely watched because they significantly impact the prices of stocks.

What are Earnings Announcements?

Earnings announcement refers to the declaration of a company’s official earnings for a specific period. This period can range from a quarter to a complete year. Such earnings are made at a particular date during a fiscal year, and before these earnings announcements, equity analysts make predictions about the estimated profitability of companies.

Analysts use historical records and other statistical methods to estimate the upcoming corporate profits, and based on these estimates, investors and traders speculate in the stock market. Investors also use the estimates to compare the actual earnings and invest and trade in shares of companies according to that. For example, when the earnings announcements fall short of the analyst estimate, the shares in question usually experience a price decline.

• The earnings announcements refer to the official announcement of quarterly earnings by publicly listed companies.
• These earnings announcements are preceded by analyst’s estimates of the company's expected financial performance. These analysts publish the estimated figures for the public based on which investors create strategies for investing.

How Do Earnings Announcement Impact Share Prices?

In India or probably in every other country, companies publish quarterly earnings reports during a financial year. As the earning season arrives, stock market participants and analysts become active and eagerly await earnings announcements.

The main reason behind the excitement or, at times, anxiety can be associated with the volatility that the stock market experiences once the earnings are announced.  As mentioned above, equity analysts publish estimates before companies make earnings announcements and as per the difference between the expected and actual earnings, investors act in the stock market.

Generally, a positive difference (actual earnings > estimates) fuels a bullish trend, leading to increased prices of shares. On the contrary, a negative difference (actual earnings < estimates) fuels a bearish trend, leading to a plunge in share prices. This is a general reaction of investors during an earning season. However, the stock market can also have an element of surprise in its behaviour against the actual earnings announcements.

In many cases, an ongoing sentiment overpowers the impact of earnings announcements on the stock market. For example, suppose that before a company posts its earnings at a quarter-end, the stock market has been going through a strong bullish trend. Within this ongoing trend, if a company makes an earnings announcement and its profitability figures are below the analyst's estimates. In such a scenario, it is possible that investors oversee the low earnings due to the current bullish sentiment, and eventually, the company's stock prices are not impacted much.

It is important to note here how the market reacts to a company's earnings announcement depends on many factors, and the estimates provided by the equity analysts are not exact figures. Therefore, when you think of investing in a company that has recently announced its earnings, ensure that you have a clear understanding of how to analyse and compare the published earning figures with the estimates.

• Like every other corporate event, earnings announcements impact the share markets significantly. 
• When a company announces its quarterly earnings, investors compare it with the analyst estimates and make investment decisions accordingly. 
• Sometimes, the market can provide an element of surprise when it does not react according to a company's estimates and earnings announcements. This surprise can occur due to factors such as prolonged bullish market sentiment.

Key Takeaways On Earnings Announcement

• Corporate earnings refer to the official profitability figures announced by a company on a quarterly or annual basis.
• Earnings announcement is an important corporate event undertaken by every listed company in the Indian stock market.
• Equity analysts provide estimates about a company's earnings before the actual earnings announcements.
• Earnings announcements impact share prices significantly. Generally, investors and traders react in the share market based on companies' earnings figures. If reported figures are higher than the analyst's estimates, prices usually go up, and if the actual earnings are less than estimated, prices usually go down.