If you want to invest in the stock market as a day trader, meaning you want to make money rapidly in the short term, it’s a very exciting time right now!

Big name company’s will be announcing their earnings and their profits this month, including Tesla, Netflix, Microsoft, First Solar and United Airlines.

But first, let’s look at what is an Earning

A company’s Earnings are its after-tax net income. This is the company’s bottom line or its profits.

Simply, a company’s profits in a given quarter or fiscal year. (typically every quarter/3 months for large organizations).

Because these large organizations are publicly traded, these companies need to tell their shareholders how well they’re doing financially.

Why is this important to you?

Well, if you’re going to invest in these organizations, especially as a day trader, then you need to know how these organizations are getting on financially so you can make wise decisions when trading. Is the organization meeting their financial goals consistently?

Earnings are perhaps the single most important and most closely studied number in a company’s financial statements.

Earnings are the main determinant of a public company’s share price because they can be used in only two ways. 

1. They can be invested in the business to increase its earnings in the future, Or
2. They can be used to reward stockholders with dividends.

If a company has overflowing profits they also may re-invest it back into the organization. 

The determinant of the financial health of the company.

What does Earnings Missed mean?

If analysts on average estimate that earnings will be $1 per share and they come in at $0.80 per share, the price of the stock is likely to fall on that “earnings miss”. This means that they weren’t able to meet the analysts earnings / financial goals.

What does Earnings Beat mean?

Earnings Beat, in simple terms, is the opposite of Earnings Missed. For example, if analysts on average estimate that earnings will be $1 per share and they come in at $1.80 per share, the price of the stock is likely to rise on that “earnings beat”. They were more profitable than they estimated themselves to be.

How do companies come up with these figures?

All large companies will have internal audit systems which have checks & balances in place to ensure the company is following its expected financial path. Proper accountability for where resources are being used 

Publicly traded companies have extensive auditing systems with the structures to accurately estimate quarterly profits. These systems take into consideration labor, how well the company is selling to the public, if they’re able to deliver the goods they’re selling. 

If you track the previous earnings of the company and also follow news on the company, you’re able to predict well whether a company is due to meet its earnings, or if it’ll miss its earnings. By following the news you’ll get a great idea as to how the company is performing.

Earnings per Share

This is a commonly cited ratio used to show the company’s profitability on a per-share basis. For example, If the company has 100,00 shares, what is the profit per share? 

Price-to-Earnings

Calculated by dividing the Share Price by Earnings per Share. This is used by investors and analysts to compare the relative value of companies in the same industry or sector.

The stock of a company with a high P/E (Price-to-Earnings) Ratio relative to its industry peers may be considered overvalued. This means that if the P/E Ratio is high, compared to similar companies who make similar goods, the share price is not accurate and is not worth the share price. 

A company with a low Share Price compared with its earnings might appear to be undervalued. It’s usual for newer companies to be undervalued as generally people like to invest in established companies as it’s a safer bet. However if the company is being undervalued and therefore it’s doing really well, beating their Earnings and meeting their financial goals, this could be a good company to invest in as it has huge potential to make you a lot of money by investing early before the general public jumps on board.

How do I know who to Invest in?

First and foremost, read the news! What newer companies are there that seem to be doing well? Take a keen interest in who’s up and coming and have recently started public trading.

What is Earning Manipulation?

Sometimes if a company has a really high or low P/E Ratio. A company will try to to save itself so it gives an incorrect depiction of the company’s value. For example, they will buy a smaller company to show on paper that they’re profitable and they’re expanding, when in reality they’re struggling.

Buy Back

A Buy Back is when a corporation purchases its own shares in the stock market. A company may do this for many reasons, for example:

• They may do this so they can give them to employees as a benefit/incentive for working for them.
• They don’t want the shares to be floating and therefore the share prices don’t become diluted.
• They want to show to their investors that they have enough cash to buy back shares and aren’t in financial trouble (can be a false depiction).

A repurchase reduces the number of shares outstanding, thereby inflating (positive) earnings per share and often, the value of the stock. 

A share repurchase can also demonstrate to investors that the business has sufficient cash set aside for emergencies and a low probability of economic troubles 

What is Earnings Season?

This is the month of the year during which most quarterly corporate earnings are released to the public. At this time we can look at the company to see if it’s met or missed it’s financial goals. By knowing this you can make decisions around whether to keep your money within companies or whether you want to withdraw your money.

This is an important time for investors and others who rely on analysts’ review of a company’s earnings and assessment of the intrinsic value of its stock.

Earnings Season typically begins in the month following major companies’ fiscal quarters: January, April, July and October.

The following companies are expected to report their earnings in July 2023:

• Netflix
• Tesla
• Mattel (look at this company closely as there’s a new Barbie movie coming out - July 26th it’s reporting its earnings)
• Microsoft
• First Solar
• United Airlines

And many more!

Last week major banks reported their earnings and all of them beat their earnings. It's a great time to invest!

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