Why Company Earnings Matter

If you have been following the Charisse Says series via Modest Money, you have learned how to take over a position of power over your money, why you need a financial advisor to grow your wealth, how to find the right one for you, and how the stock market works. In the next video in the series, “Why Company Earnings Matter,” I cover 3 things that are very important when you are investing your money and building wealth:

(1) What are company earnings? 

(2) How do company earnings influence the market?

(3) Where do you go for earnings information?

Now that you are the CEO of your money, you have to keep in mind that a company’s ability to stay in business is a function of whether or not it earns money. Therefore, if you are going to be a serious investor you need to understand what a company earns.

What  are company earnings?

When a company earns more money from selling its goods or services than it spends on making those goods or services, it makes a profit also known as earnings. Companies that tend to generate positive earnings tend to see their stocks go up. This is a bit of an over-simplification, but striving for positive earnings is a good first step for company management teams who want to increase the value of their stocks over time. Without reliable earnings, an investment is rarely worth your time.

In the video below, I explain why there are some companies that don’t make a profit but have been wildly successful stocks, although with the recent stock market tumble at the beginning of 2016, some of these “success stories” are no longer relevant.  That said, some investors do not care if the company is making a profit, yet.  It is important for you to not follow other people’s investment decisions if you do not understand what is driving their buying decision. Again, stock prices usually go higher when companies have positive earnings.

How do company earnings influence the market? 

Companies typically have quarterly earnings releases. This gives shareholders and the public information on what is going on with the company, and allows the company (and investment insiders who are aware of the information) to act on that information  by trading the company’s securities. The market cares so much about earnings releases and calls because they contain some of the most material information that public companies have, and drive stock prices.  You should care too because these critical dates and information play an important role in the investment decisions of individuals like you and me, investment companies, and the whole market. Once people have new information, they figure out if they want to buy more, sell more, or hold and do nothing.

Where do you go for earnings information?

Well, there are three ways in which you can find out more about any company’s earnings information and financial news. The first is to look on any public company’s website and check out the Investors tab.  For a full list of instructions on how to navigate through the investor tab, check out my blog. The second way is to go to a search engine outlet. A few good ones are Yahoo Finance and Google Finance.  The third way to find out more about a company’s earnings is to utilize a respected financial outlet. When I worked on Wall Street, I liked to use Bloomberg – my favorite source for financial info. But, other good outlets are www.thestreet.com, msnbc.com, and earningswispers.com.

A lot of our smartphones  come pre-loaded with an investment app that will give you this information. If you have a brokerage account, the info is probably there too.  The trick is to use what works for you.

Now that you’ve read the basics, what the short video below and you will be entertained, educated, and on your way to building wealth.

By Charisse Conanan Johnson, CFA. Charisse is a T.V. personality, financial wellness expert, entrepreneur, writer, and speaker. Charisse is the creator of the Charisse Says Show. You can follower her @CharisseSays.