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Each year, investors have four opportunities to gauge the market and get some insight into how companies have performed and where they are headed next. Earnings season is the prime opportunity for shareholders to take notice of market fluctuations and adjust their investments accordingly.

On one day each quarter, companies publicly reveal this information, doing so in a staggered manner across a number of weeks so as not to overwhelm investors. To succeed as a trader, it’s essential you keep an eye on when companies report to the market.

To gain further insight into earnings season, we recruited Josh Gilbert, Market Analyst at the online trading platform eToro, to explain what it is and how you can use it to your advantage.

What is earnings season?

Earnings season is the term used to describe the periods when publicly listed companies release their quarterly reports. The report released from each company will show the financial results from the previous quarter.

If you want to take your trading skills to the next level, you need to embrace earnings season. The financial fortunes of a company can and will change over time. As an investor, you need to be aware of these fluctuations and, in turn, understand what they mean for your holdings.

How do companies communicate with one another to organise the order in which they’ll release their financial results?

The first thing to note is that earnings season doesn’t necessarily follow the annual calendar. Instead, companies follow the economic calendar, which means reporting periods are individual. In general, each earnings season starts a week or so after the final month of the previous quarter. Quarters are three-month periods which, according to the US economic calendar, are:

January, February, and March = Q1
April, May, and June = Q2
July, August, and September = Q3
October, November, and December = Q4

Because each company has its own accounting periods and terms, there are no set dates. Therefore, you’ll need to use our earnings calendar to keep updated on all the latest quarterly reports.

Every company will release their report on their website, usually in the investor relations section of the company website. These teams will set up earnings calls, where the public can dial in and listen to the executive team, and they will describe the company’s results for that quarter and publish the report on their website. Often, news outlets will also release the information and provide key takeaways from the report in an article you can read online.

What should the average investor look out for during each earnings season?

A typical earnings report will include breakdowns of revenues from different sectors of the business and lots of other helpful bits of information such as cash flow statements.

Analysts forecasts, also known as earnings forecasts, are reports that aim to predict a company’s growth and profitability. These forecasts are essential during earnings season as many investors look at the reports published by prominent Wall Street analysts.

Often the key factors are revenue and earnings per share (EPS).

Gross Revenue: This is the total amount of income a company has made during the latest quarter/reporting period before any deductions are made.

Earnings per share (EPS): Earnings per share refers to the company’s profit divided by the outstanding shares of its common stock. This calculation tells you how much money a company makes for every share in its stock.

Are there certain red flags in the reports that might indicate you should sell or avoid buying?

As I mentioned above, the expectations of EPS and Revenue weigh heavy on each share when they report. If a company isn’t meeting analyst expectations, this could be a red flag for a business because they aren’t meeting expectations.

Conduct your research and consider what you know about a company, its history, recent performance, expected earnings, and general market conditions.

Be sure to read analyst guidance before an earnings report.

How can the market be affected by earnings season?

If stocks produce strong earnings, often this will have a positive effect on the general market. Especially if we look at big tech names such as Amazon, Apple, Facebook etc., they often report on the same days. If all of these companies produce better than expected results, we can usually expect their share prices to increase. Due to the size of the companies and how they weigh the indexes, they often will drive markets.

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