Earnings calls allow publicly traded companies to discuss their performance with investors and analysts. They provide a platform to discuss performance and dive deeper into the numbers. Analysts and investors can also ask the executive team questions during earnings calls.
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What is an Earnings Call?
Earnings calls typically occur quarterly after a public company releases its earnings results. These calls are a way for management to explain the previous quarter’s results, what drove the numbers, and what investors can expect over the next quarter and the rest of the fiscal year.
While the Securities and Exchange Commission (SEC) doesn’t require companies to have an earnings call, it’s become somewhat customary.
What Happens on an Earnings Call?
Earnings calls are usually conducted by the chief executive officer (CEO) and chief financial officer (CFO). Occasionally, they will also include the chief operating officer (COO) and others from the senior-level management team.
The calls will typically start with someone from the investor relations team giving a safe harbor statement that helps protect the company from liability if the actual results differ from what’s discussed on the call.
From there, the CEO usually gives an introductory statement about the company’s performance in the previous quarter. Then, alongside the CFO, they will provide financial results and earnings guidance.
Once the scripted remarks are made, they will open things up to questions from investment analysts who cover the company and investors.
How Analysts and Investors Use Earnings Calls
Earnings calls are an excellent way for analysts and investors to understand a company’s financial health better. Based on the outlined results, analysts ask leading questions that help them understand the numbers better. The answers they get from executives can help them provide more accurate estimates on what they expect over the next quarter or the remainder of the year.
As an example, assume a company reported a huge revenue gain over the quarter. An analyst will probably want to investigate the cause. Was it a product launch? Was it entering a new market? They want to find out if this increase in revenue is sustainable or short-lived.
On the other hand, investors use information from earnings calls to make more informed investment decisions. Earnings usually create a good amount of volatility for a company. Traders can use that to their advantage to generate a profit. However, long-term investors could use a pullback as an opportunity to buy at a more attractive price.
The Bottom Line
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Earnings calls are a way for publicly traded companies to keep their investors and analysts up to date on the company’s financial health. These calls can be used to examine earnings to better understand what everything means going forward.
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This article originally appeared on GOBankingRates.com: What Is an Earnings Call? Here’s What New Investors Should Know
