When dissecting the complexities of company earnings reports, it’s crucial to know what to look for. We’ve gathered 18 distinct insights from CEOs, CFOs, and other top executives—from examining a competitive growth comparison to viewing EBITDA as a financial indicator—to guide you through the nuances of financial analysis.
MAKE A COMPETITIVE GROWTH COMPARISON
When I’m analyzing a company’s earnings report, the first thing I always look for is how they’re doing compared to their competitors.
There are so many different ways to measure competitive performance, from market share to customer satisfaction. But in my experience, the best way is to look at how the company is growing relative to their competitors and by what percentage.
This lets me see whether or not they’re innovating, and whether or not they’re able to grow organically or through acquisitions.
Dave Kerr, Advertising Specialist, Merged Dental Marketing
EXAMINE YOUR R&D SPENDING
One of the first things I look for is any disclosure about R&D spending. When R&D spending is high, you know you’ve found a company that values innovation and is willing to spend on attracting top talent and using the latest technologies to make their business even stronger.
Since so many markets are saturated, it’s about investing in your people, retaining top talent in creative roles, and finding new ways to do business ahead of the competition.
Robert Kaskel, Chief People Officer, Checkr
ARTICULATE YOUR VISION
In my experience, I always look for something that I can’t pin down.
I don’t want to see the company’s earnings report and hear about all of their successes in an unambiguous way. I want to know what their goals are and what they’re hoping to accomplish with the money they make. Are they saving it? Investing it? Using it to grow? What do they think about their current state?
From what I’ve seen, those companies that have been able to articulate their vision for the future with a simple but compelling message have outperformed others by a significant margin.
Arvin Khamseh, CEO, Sold Out NFTs
REFLECT ON YOUR OPERATING LEVERAGE
I always look at the operating leverage in a report. This reflects how well a company can convert revenue growth into operating profit. High operating leverage indicates that a company can increase profits without proportionally increasing its costs. It’s a sign of scalability and efficiency.
Low operating leverage is no reason to dismiss a company, but it often points to issues that become apparent in other metrics, such as low profit margins, high operational costs, or inefficiencies in production or service delivery.
Mark Varnas, Principal SQL Server DBA and Consultant, Red9
INSPECT LEGAL RISKS IN REPORTS
Earnings reports don’t just give you a sense of a company’s financial health; they can also be used to gauge the risks you face when partnering with a company. The biggest potential risk I look for in a report is potential lawsuits.
If a company has outstanding lawsuits, they have to report them with a brief description of the case. You can find this information in Part II of a report (Other Information) under Item I (Legal Proceedings). It’s unlikely you’ll find a price tag next to the lawsuit, but you can examine the nature of the lawsuit and make an estimation. Compare the financial risk of litigation with the value of the company before making a decision.
John Hughes, CEO and President, ElectricianShield
HONE IN ON DEPARTMENT SPEND
I look for a detailed breakdown of costs in the income statement. The big expense in my world (software) is wages, salaries, and benefits. As a result, I am usually honed in on the department-level spend breakdown.
What I want to understand is how the business is spending in order to achieve the revenue profile it has. If the business is stable, then I would expect to see limitations and cuts in growth spending. If the business is growing, I want to get an idea of how effective that spending is. Across the board, I am always looking to see if the business is driving efficiencies in every department.
Trevor Ewen, COO, QBench
EVALUATE MARKETING MIX ELASTICITY
One of the most important aspects of my earnings report research for a company is marketing mix elasticity. I evaluate how adjustments to marketing variables, like advertising budget, pricing schemes, and promotional initiatives, impact overall performance besides discrete measurements. This elasticity perspective offers a more complex view of the marketing levers influencing revenue.
This method’s unique quality is its capacity to reveal obscure relationships. For example, a spike in advertising spending that doesn’t correspond with a corresponding increase in sales could be a sign of a crowded market or poor messaging.
Through the process of analyzing these interdependencies, I can assess the direct effects of marketing choices as well as the complex network of variables affecting consumer behavior. This all-encompassing understanding directs tactical changes, guaranteeing a more flexible and successful marketing strategy for long-term company success.
Ilan Nass, Chief Revenue Officer, Taktical
FOCUS ON GUIDANCE
My primary focus in a company’s earnings report is the guidance.
Most companies, along with detailing their performance in the previous quarter, also provide an estimate of their expectations for the upcoming quarter and the following year. This forecast, referred to as “guidance,” often has a greater impact on the company’s stock than the actual past performance. For instance, if a company reports revenues and profits that exceed expectations but its stock value decreases following the announcement, it’s typically because the guidance provided is less optimistic than anticipated. In such situations, the previous quarter’s results become less important compared to future projections.
In my experience, stronger guidance tends to elevate a company’s stock price because investors are likely to respond positively to the optimistic outlook and purchase more shares. However, a projection of weaker performance can lead to a decrease in the stock price, which means cautious or pessimistic guidance can erode investor confidence.
Lucas Ochoa, Founder and CEO, Automat
MONITOR REVENUE GROWTH
One crucial thing to monitor in earnings reports is revenue growth. It provides insight into a company’s ability to increase its top line, which is crucial for long-term success. Like a stable heartbeat—consistent and healthy—revenue growth indicates that the company is doing well, selling more stuff, and possibly gaining market share. If revenue is flatlining, or worse, declining, it could mean serious problems.
After all, a company that’s not making money isn’t likely to stick around for the long haul. Revenue growth is a good indicator of overall company vitality and competition in the market.
Peter Reagan, Financial Market Strategist, Birch Gold Group
ANALYZE PROFIT MARGIN
When analyzing company earnings reports, I first look at the profit margin. Profit is a telling sign of the business’ operational success and proficiency in turning a profit from its sales.
A healthy profit margin means the business is on the right track—managing costs effectively and getting a good return on its sales. If that number is falling short, it’s a signal to investigate and understand why and where the company’s efforts aren’t translating into financial success. After all, a business thrives on its ability to sustain and grow its profits.
Gary Gray, CFO, CouponChief.com
TRACK RETURN ON EQUITY
My go-to metric is return on equity (ROE). ROE reveals how effectively a company is using the investments shareholders have put in. I see ROE as a snapshot of management’s prowess in generating profits from shareholders’ investments. A high ROE often indicates a company is efficiently using its capital to grow profits.
Context is key. I compare it to industry standards and track its trend over time. This helps in understanding whether the company is really outperforming its peers or just riding an industry wave. ROE gives a deeper insight into a company’s potential for long-term growth, making it a crucial marker for savvy investment.
Zephyr Chan, Founder and Growth Marketer, Better Marketer
REVIEW CLIENT PAYMENTS VERSUS PROFIT
Company earnings are simply a company’s profits and the benchmark and overall measurement of success. We have found that reviewing our net income against client payments and longevity has proven the most effective for us.
We look at company earnings every month, as that’s the period we operate within. What those earnings tell us is how much we’ve spent concerning customer payment, which gives us a better overall view than comparing just net and gross profit. We can see how the company performed, how well we filled client orders, and what to do in the coming month.
We can also analyze the earnings statements at the end of the year to determine trends, slow months, and high-earning months to make a projected plan for the coming year. Preparedness is the most prominent allure of this analysis strategy.
Brett Downes, Founder, Haro Helpers
UNDERSTAND TECHNOLOGY’S ROLE IN EARNINGS
When analyzing company earnings reports, I always look at the influence that technology has had on our earnings. Whether that means lead automation or utilizing generative AI to help with content ideas, every bit of tech we use plays a role in the company’s fiscal bottom line.
Since we analyze the role that technology plays in increasing our earnings, we can see where to better allocate funds in the coming quarter. Perhaps we are seeing a decent payout from using social media planning platforms. We know to put more money there in order to determine how large a role it plays in affecting the bottom line.
It’s essentially a positive domino effect in which, further down the line, the dominos get heavier and more profitable to push. Understanding how certain software and programs affect what our company makes allows us to make educated decisions about where we spend our money, which keeps us continuously profitable.
Jack Vivian, Chief Technology Officer, Increditools
INVESTIGATE OPERATING CASH FLOW
My accounting degree emphasized the importance of always focusing on the company’s operating cash flow when analyzing company earnings reports. Positive operating cash flow indicates that the company can sustain and grow its operations without relying on external funding.
This focus on operating cash flow provides a more grounded understanding of a company’s operational efficiency and financial health, beyond what net income or revenue alone can show. It’s a leading indicator of the sustainability of operations, which is crucial for long-term growth.
Brett Farmiloe, CEO, Featured
LOOK FOR DIVIDEND CONSISTENCY
One thing I always look for when analyzing company earnings reports is whether or not the company has a consistent track record of paying out dividends. This is an important indicator of how well a company manages its resources and how much value it can create over time. It’s also an indication of how seriously the company takes its shareholders—which, in turn, shows us how much they care about the long-term health of the business.
In my experience, what I’ve found is that this is one of the best indicators we have when trying to predict long-term growth and success for a company.
Gert Kulla, CEO, RedBat.Agency
SCRUTINIZE EARNINGS PER SHARE
When analyzing company earnings reports, I consistently scrutinize revenue growth trends. Sustained revenue expansion typically shows that there is a healthy demand for the company’s products or services. It adequately reflects the market relevance and profit potential, so checking this when reading the company earnings reports is crucial. Typically, it gives insights into customer loyalty, market share, etc.
When analyzing company earnings reports, I prioritize earnings per share for its insight into profitability and the stock’s price-to-earnings ratio. Core financial statements—including the income, balance, and cash flow statements—are also key for a comprehensive financial overview. The Management Discussion & Analysis provides context on the company’s direction. SEC filings like Form 10-K and 10-Q offer detailed, reliable data as well.
Lyle Solomon, Principal Attorney, Oak View Law Group
ASSESS DIVERSIFICATION AND REGIONAL PERFORMANCE
I want to see how well a company performs overall and how that performance breaks down across regions and market segments.
When a company has taken the time and spent money expanding into different markets and areas to diversify itself, it’s hedging its own bets and ensuring better success—if one product or market falls, there are others to pick up the slack. The key to long-term success lies in being able to diversify well to keep your business relevant and growing healthily.
Hardy Desai, Founder, Supple Digital
SCAN THE EBITDA
When I go through company earnings reports, I always check the EBITDA. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It’s often a significant part of earnings reports and calls. If a company has a high EBITDA, it usually means they’re in good financial shape.
I focus on this because it provides a quick snapshot of a company’s financial performance. EBITDA helps understand how well our company is doing in its core business operations, without being affected by other factors like taxes or interest payments. It’s a way to compare companies in the same industry, as it removes the effects of financing and accounting decisions.
However, it’s important to remember that EBITDA doesn’t show everything. It leaves out things like how much interest the company pays on debts, significant purchases of items the company needs, and costs that don’t involve actual cash. So, while it’s helpful, it’s not the full story of a company’s finances.
Precious Abacan, Marketing Director, Softlist
Featured connects subject-matter experts with top publishers to increase their exposure and create quality, ready-to-publish Q&A content.
