Section
Earnings
The numbers under the earnings-per-share headline: what the company kept from each dollar of sales, what the adjusted figure left out, and how fixed costs make profits swing harder than revenue.
Earnings per share is the last line of a long calculation, and several lines above it can move the result without the business changing at all. A lower share count from buybacks, a one-time tax benefit or an adjustment that removes stock-based pay can all lift the headline while the operating margin shrinks.
Read the release from the top. Revenue first, then gross and operating margin, then the reconciliation between GAAP and adjusted figures, and only then the per-share number. The profit margin calculator works out gross, operating and net margin and earnings per share from any income statement, and the free course on earnings reports walks through the statements in order.
Free courses
All courses →Beginner · free
Ten-Q Very Much: Reading Earnings Reports and Financial StatementsTraders and investors who read the earnings headline and want to read the financial statements underneath it.
Columns
All columns →Argument
Operating Margin Is the Earnings Line Worth Reading FirstRead operating margin before EPS, because the per-share figure can rise on buybacks while the business keeps less of every dollar it sells.
Myth check
Stock-Based Pay Is a Real Cost, Whatever the Adjusted Figure SaysStock-based pay is a real expense; use GAAP earnings, or subtract the stock compensation from the adjusted figure yourself before you compare.
Answers
Concepts
- Contribution margin
The share of each sale left after variable costs, available to cover fixed costs and then produce profit; expressed per unit in dollars or as a percentage of price.
- Operating leverage
The degree to which a company's operating income changes faster than its revenue because a large share of its costs are fixed and do not move with sales.
Quizzes
- Below the Beat: A Quiz on Reading Earnings Results
Whether you can trace an earnings beat to its source: the business, the share count, the tax line, adjustments, one-time items or cash that never arrived.
Calculators
- Profit Margin Calculator
Gross, operating and net margin from an income statement, and earnings per share from the share count.