Earnings call definition
/What is an Earnings Call?
An earnings call is a conference call between the senior managers of a public company and members of the investment community, to discuss the performance of the business. Earnings calls are intended to provide investors with additional clarification about the financial results and financial position stated in a firm’s financial statements, typically expanding upon and explaining financial information. Many entities record these calls and then post them in the investor relations section of their websites, so that anyone can access them.
Smaller public companies that cannot afford an investor relations officer may not bother with earnings calls, since they are not required by the government.
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Advantages of an Earnings Call
Analysts find these calls to be useful, since they may provide valuable clues about the financial situation of a business that could lead to changes in a firm’s stock price. Since these calls enhance relations with investors, they can be a useful tool when the firm wants to engage in fund raising at a later date.
Structure of an Earnings Call
The typical steps following during an earnings call are as follows:
Introduction and safe harbor statement. The call usually begins with an introduction by the Investor Relations (IR) officer, who welcomes participants and states the Safe Harbor statement—a legal disclaimer that forward-looking statements made during the call are subject to risks and uncertainties.
Executive remarks. Senior executives, typically the CEO and CFO, provide prepared remarks. The CEO discusses the company’s overall performance, market conditions, strategic developments, and key business highlights. The CFO then goes over financial results in detail, including revenue, expenses, earnings, cash flow, and performance by business segment.
Guidance discussion. Management provides forward-looking guidance for upcoming quarters or the full fiscal year. This includes projections for revenue, earnings, margins, or other key metrics.
Q&A session. Analysts and institutional investors ask questions directly to the executives. This segment allows the investment community to get clarification or deeper insight into the financials, strategy, and outlook.
Closing remarks. The call ends with brief closing comments and thanks from management or the IR officer, followed by instructions on how to access the replay or transcript.
When to Schedule an Earnings Call
An earnings call is usually held immediately after a firm’s issuance of its annual or quarterly financial report. By doing so, you can focus the conversation on issues contained within that financial report, and not on anything that might have happened subsequent to the release of the report.