What is Earnings Call?
Earnings Call refers to a conference call or a webcast by the management of a public company to discuss the financial results achieved by the company during the period under consideration, such as for a quarter or a financial year. These calls are usually attended by financial analysts, investors as well as media where they can ask questions to the management for further clarification.
Structure of Earnings Call
The information regarding hosting of the earnings call is given in advance by the company officials. Persons attending the event consists of media persons for coverage of the event, investors, and market analysts.
#1 – Safe Harbor Statement
It is basically a kind of disclaimer that the presentation will include the forecasted financial results as well, which may differ from the actual results achieved. It saves the company from any future liability owing to the fact that management gave some estimates regarding its future results, and the same did not match with the actual results.
#2 – Discussion of the Financial Results
After issuing a general safe harbor statement, the earnings call is taken over by the company’s top-level officials (such as CEOCEOChief Executive Officer is the full form of CEO. He is the most senior member of a corporate organization, an executive who oversees the whole administration and operations of the company and reports directly to the board of directors and chairman, with the sole purpose of generating wealth for the company's stakeholders and shareholders. read more, CFOCFOThe full form of CFO is Chief Financial Executive, and he or she is a top level executive of the firm who is responsible for the firm's overall finance functions and has the authority to make financial decisions for the organization. read more, etc.). They present the financial results of the company achieved during the reporting periodReporting PeriodA reporting period is a month, quarter, or year during which an organization's financial statements are prepared for external use uniformly across a period of time in order for the general public and users to interpret and evaluate the financial statements.read more. Apart from this, a discussion occurs about the company’s future plans and forecasts and the company’s roadmap for the same.
#3 – Question and Answer Session
The next session of the earnings call is where the outside participants are given a chance to ask the company officials any queries they have. The company officials, if they want, may answer the question or decline or defer the answer too.
#4 – Closing Remarks
The management gives a conclusion of all the discussions held.
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Source: Earnings Call (wallstreetmojo.com)
How Long is an Earnings Call?
Typically, earnings call last for a total of 45 to 60 minutes. However, there are no statutory guidelines for the call duration. Also, the duration of the call majorly depends on how much time is taken is the question and answer session.
Importance
The earnings call is very important for investors and market analysts. It is due to the fact they are informed about the financial results and future plans of the company. It is a reliable source of information for them. They are also given a chance to ask the management during the question and answer round of any ambiguity they have regarding the financial results presented. This useful information is used by the investors and the analysts to plan their investments in the company and have an estimate of their earningsEarningsEarnings are usually defined as the net income of the company obtained after reducing the cost of sales, operating expenses, interest, and taxes from all the sales revenue for a specific time period. In the case of an individual, it comprises wages or salaries or other payments.read more from those investments.
Advantages
- It is an opportunity available with the company to declare the financial results of the company to its investors, general media, and market analysts.
- Also, the call is important for the participants who gather financial information about the company, which thereby helps them to make their investment decisions.
- The participants get an opportunity to attend a question and answer session, and they can use the same to their advantage, which otherwise would not have been possible for them.
- It provides an insight into the plans of the company.
Disadvantages
- The call may be less useful and uninteresting if the company officials just run the pre-recorded scripts or just read out the written information.
- In a few companies, the company officials decide themselves as to whom to select for question and answer sessions. The sessions were becoming boring then, and the purpose of the investors and media attending the call is defeated if such a thing happens.
- Analyzing the data just after the company officials present the financial results becomes a bit difficult, and the participants may not come up with some good quality of questions.
Conclusion
Investors look forward to the earnings call of large companies to have deep insight into the company’s financial results and its future goals. The company shall try to keep the call interesting and interactive by allowing user participation.
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