 Personal Finance PowerPoint Presentation Earnings Season Prepare to get financially fit by practicing personal finance. Most of this information comes from Investopedia Earnings Season, which you can find online. Take a look at the references, resources, continue your research from there. This by Alicia Tavila, updated May 29, 2021 in prior presentations. We've been taking a look at investment goals, investment strategies, investment tools, keeping in mind the two major categories of investment that being the fixed income, typically bonds, and then the equities, typically the common stock. Now we're asking what is earnings season? Earning season refers to the months of the year during which most quarterly corporate earnings are released to the public. So obviously this is going to be key if we're trying to track our investments. Now remember, as you're thinking about tracking our investments, we could have different strategies to do so. For example, we might be on a long-term horizon. Many investors, for example, might be investing under the umbrella of a 401k plan or under the umbrella of an IRA. They might be using tools such as mutual funds to do so and using a broad, diverse strategy to have a long-term type of investment, which means you might not be tracking the earnings for any particular company too closely because you're betting, in essence, on the market overall taking a diversified approach to do so. However, if you're investing in individual stocks or you're investing in shorter-time horizons, it's more and more likely that you're going to be focused on the details in terms of what's happening on the underlying fundamentals of a particular stock of a particular corporation. And there is going to be reported with regards to the financial statements and, of course, one of the major driving components of that is the earnings and they're going to release those typically on a quarterly basis. So we're going to break down the year to quarterly basis and then we get our earnings periodically throughout the year that everybody's going to then drive on to make their predictions and investments. So earnings season generally occurs in the month immediately following the end of each fiscal quarter. So we got the year, 12 months for the fiscal year. Divided by four to get to the quarters, which are going to have three months quarters. Three, four, three month quarters, right? This means that earnings season typically falls in January, April, July, October. Now, if you think about that, of course, that means that the first quarter of the year, first three months, January, February, March, they've got to then compile. The business does the data in order to then give it out to the public. So that's going to happen in the following month in April. And then you got April, May, June, which then that's the second quarter is going to be issued to the public after they compile that data in July, July, August, September for the third quarter is then going to be compiled and published in October and then October, November, December, the last quarter then is going to be compiled and given to the public in the following year, January of the following year. So because firms need time after each quarterly accounting period ends to put together their earnings reports. You can imagine on the accounting side of things, you've got accounting departments going crazy by the end of the quarters because they're trying to get the information together so they can put it out there as is required in the following month after the quarter ends. So when earnings season, when is earnings season? The unofficial kickoff of earnings season is the release of earnings by Alcoa. That's the NYSE New York Stock Exchange AA and aluminum producer as it is one of the first major companies to release earnings after the end of each quarter. So you're going to say, okay, here come the floodgates after you see AA now releasing their earnings. It also coincides with an increasing number of earnings reports being released by other public companies. So there is no official end to the earnings season but it is considered to be over when most major companies have released their quarterly earnings reports. So there's going to be required dates through the earnings season and obviously as most of the earnings are reported once their major earnings reports have been out then you would think that would be going towards the end of the earnings season. It generally occurs about six weeks after the start of the season. For example, for the fourth quarter you will often see an increase in number of earnings reports released in the second week of January. Alcoa typically releases at the start of the second week about six weeks later or near the end of February the number of earnings reports starts to decrease to pre-earnings season levels. So there is also very little time between each earnings session or season. For example, earnings season for the first quarter begins in early April. So you got the first quarter January, February, March they're going to issue the information out hopefully early April to get the timely information which is a little over a month after the end of the fourth quarter earnings season. So although most companies are on a standard calendar year some major public companies have fiscal quarters that do not correspond with a calendar year. For example, Walmart, New York Stock Exchange WMT has a fiscal year end of January 31st. This later fiscal year end allows ample time following the holiday season to or in order to fully capture all holiday purchases in year end profits. So in other words, some companies are going to be on the fiscal the fiscal year but some companies might have some other year as opposed to the calendar year and that might be in order to capture you know the natural earning seasons of that particular company. For example, here of course when you're talking about sales at Walmart you would think that that would be increased during the busy season for them which would be basically the holiday season. So therefore Walmart will likely release its earnings to the public toward the end of a typical earnings season. So earnings season and investors, earnings season is easily the busiest time of the year for those who work in and watch the markets as virtually every large publicly traded company will report the results of their last quarter. So clearly if you watch the stock market they'll be busy during that time reporting all the earnings of the different companies and talking about whether they hit their expectations or not. Analysts and managers typically set their guidelines and estimates to correspond to specific quarters or fiscal year endings so the results reported by firms during earnings season often have a big role in the performance of their stocks. Clearly what you're going to try to be doing on the investment side is try to predict what's going to be happening in the future gauging your investments on them and then once the reports come out you're going to measure what you guessed to the reports. Some analysts like to calculate a company's earnings before taxes, EBT, this is also referred to as pre-tax income. Taxes greatly skew the calculation of earnings because we have a progressive tax system for example or that's one reason. So taxes go up as income goes up. So sometimes you want to look at it without the taxes because that could be better for comparison. Sometimes some analysts like to see earnings before interest and taxes, EBIT, EBIT, still other analysts mainly in industries with high level of fixed assets prefer to see earnings before interest, taxes, depreciation and amortization also known as EBIT, E-B-I-T-D-A. All three measures depict varying degrees of profitability. As earnings season approaches many analysts will conduct intrinsic valuations to determine if the current market price of the company stock is over or undervalued. So as we look at the fundamentals of the company looking at their financial statements then we want to say okay is the market properly valuing, have they taken into consideration the new most relevant data when we're investing in the market and when people are trying to invest especially on the short term they're always looking for the new most relevant data because that's going to be the driver that might give you kind of an edge on the market. So people are jumping on those earnings reports right after they come out when they're trying to maximize the profit basically in the short run oftentimes. So this informs investors whether or not to purchase, sell or hold the stock. Fundamental analysts will look at the qualitative business model governance and industry factors and quantitative ratios and financial statement analysis aspects of a business. The discounted cash flow model is one commonly used valuation tool which relies on a company's free cash flow and weighted average cost of capital otherwise known as WACCC. Earnings calls during earnings season investor relations teams will set up earnings calls where the public can dial in and listen to the executive team describe the company's results for that quarter. So now we have the data and we've got the insiders basically interpreting that data or spending that data depending on how you look at it. Topics generally covered during earnings calls include a discussion of financial performance, any management changes, changes in corporate governance, legal involvement, industry changes and more many different measures of earnings exist and management usually discusses the context for a company's results. So they're going to try to frame the results and so on. Obviously this is coming from management who wants to give the best light to the company so you would expect that you have to take that into consideration in terms of how they might spend the data or present the data. The vast majority of publicly listed companies host earning calls. Those smaller companies with minimal interest may be exceptions. So many companies also provide a phone recording or presentation of the earnings call on their corporate website following the actual call making it possible for potential investors or those who could not log in to access this information.