What is An Earnings Call?
An 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, and the media, who can ask questions to the management for further clarification.
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Source: Earnings Call (wallstreetmojo.com)
Following an earnings call calendar gives analysts and market experts to carry out the company’s fundamental analysis. Usually, the earnings report of a publicly listed company is declared right before this call. It also allows shareholders and experts to ask questions relating to the operations and future plans of the company.
Table of contents
Key Takeaways
- Earnings calls are conference calls or webcasts where the management of a public company discusses its financial results and future plans with analysts, investors, and the media.
- The structure of an earnings call typically includes a safe harbor statement, a presentation of financial results, a question and answer session, and closing remarks.
- Advantages of earnings calls include transparency, access to financial information, and the opportunity to engage in a question-and-answer session.
- Disadvantages of earnings calls include scripted presentations, a limited selection of participants for Q&A, and challenges in analyzing data immediately after the call.
Earnings Call Explained
An earnings call is a form of communication through a conference call or a video stream between the management of a publicly listed company and its shareholders, media, and analysts. During this call, they discuss the earnings of the company for a particular period.
Investors look forward to large companies’ earnings calls to have deep insight into the company’s financial results and future goals. In addition, the company shall keep the call interesting and interactive by allowing user participation.
The media and analysts participating in the call look to read between the lines and understand the company’s financial health, future projects, and the impact of the change in management, if any. It also helps them with the fundamental analysis of the company.
These conference calls are mostly conducted right after the financial report of a particular period is declared. These meetings could be to discuss the financials on a quarterly or a yearly basis.
There are no guidelines or restrictions with respect to the duration of the call. It mostly depends on the questions asked by the participants and the answers provided by the management. The earnings call transcript is also made available usually for the perusal of people of interest to refer if they are unable to attend the call.
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Explanation of Earnings Call Video
Structure
The company officials give the information regarding hosting the call in advance through an earnings call calendar Persons attending the event consist of media persons for event coverage, investors, and market analysts. The details of the information provided in the call could vary from company to company based on their performance. However, there are a few common threads of information that are discussed below.
#1 – Safe Harbor Statement
It is a kind of disclaimer that the presentation includes the forecasted financial results, which may differ from the actual results achieved. It saves the company from any future liability since management estimates did not match the actual ones regarding its future developments.
#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 the 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 plans, forecasts, and roadmap.
#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 their queries. The company officials, if they want, may answer the questions or decline or defer the answers too.
#4 – Closing Remarks
The management gives a conclusion of all the discussions held.
How Long Is It?
Typically, an earnings call lasts for 45 to 60 minutes. However, there are no statutory guidelines for the call duration. Also, the course of the call majorly depends on how much time is taken in the question-and-answer session.
It also largely depends on the amount of information the management shares and on the performance of the company in that period. If the call goes beyond the schedules time limit due to the time spent on the question-and-answer session, companies usually provide an earnings call transcript for their audience post the call.
Importance
Let us understand the importance of an earnings call calendar and the information shared through the communication through the discussion below.
The earnings call is very important for investors and market analysts. They are informed about the company’s financial results and plans. It is a reliable source of information for them. They are also given a chance to ask the management during the question and answer session about any ambiguity they have regarding the financial results presented. The investors and the analysts use this useful information to plan their investments in the company and estimate 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
Let us understand the advantages of an earnings call transcript and the importance of the call for its stakeholders and analysts through the discussion below.
- It is an opportunity available to the company to declare its financial results 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. They can use the same to their advantage, otherwise would not have been possible.
- It provides insight into the company’s plans.
Disadvantages
Despite the advantages mentioned above, the earnings call calendar has a set of disadvantages for both the company and its people of interest. These disadvantages would help us understand the concept’s intricate details.
- The call may be less useful and uninteresting if the company officials run the pre-recorded scripts or read out the written information.
- The company officials decide whom to select for question and answer sessions in a few companies. That makes the sessions boring, and the purpose of the investors and media attending the call gets defeated if such a thing happens.
- Analyzing the data right after the presentation of the financial results by the company officials becomes difficult, and the participants might not come up with some good quality questions.
Frequently Asked Questions (FAQs)
While earnings calls are typically conducted in real-time, some companies may pre-record portions of the call or release pre-scripted statements. This approach allows companies to carefully craft their messaging and ensure accuracy in the information presented. However, it can reduce the interactivity and spontaneity of the call.
If a company falls short of its earnings estimates during an earnings call, it can lead to a negative market reaction, such as a decline in its stock price. The management may face questions and scrutiny from analysts and investors regarding the factors contributing to the shortfall and the company’s plans to address any challenges.
Many companies make recordings or transcripts of their earnings calls available for replay or review after the live event. These materials are often posted on the company’s investor relations website or made accessible through financial news platforms. This allows participants who were unable to attend the live call or those who want to revisit specific discussions to catch up on the details and analysis shared during the call.
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