Wk 4 DQ Reference.docx

One report on its own may not tell the full story

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One report on its own may not tell the full story. Small or rapidly growing companies with negative earnings, for example, may be going through a process of rapid expansion to realize their full potential. Thus, earnings reports must be read in the proper context. Positive Earnings Earnings (or growth towards positive earnings) tell you how healthy a company is and if it may pay dividends or grow through capital appreciation (higher stock price). Investors expect established companies such as Coca-Cola (KO) to have positive earnings. If Coke reports lower earnings for a quarter, the stock will likely drop unless something explains this as a one-time event. Young companies, on the other hand, may go for years with negative earnings and still enjoy the favor of the market if investors believe in its future. So, in addition to the actual earnings, there's the expectation of earnings. A company may report positive earnings for a quarter. But if it falls short of earnings Wall Street expects, investors may punish it and send stock prices on a nosedive.
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  • Spring '14
  • Adeinat,ImanM.
  • Company Earnings Matter

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