Conference calls are essential to understanding the health and future of a company you invest in or plan to invest in. Unfortunately, industry jargon and acronyms can make this process intimidating. Below is a earnings conference call glossary that will get you up to speed:
- Annual report – Publicly held companies issue an annual report at the end of their fiscal year. The annual report contains useful information, but the information can be stale and often almost half-a-year out-of-date.
- Cash and cash equivalents – Represents the total amount of cash, plus short-term investments that will be converted to cash within three months. Look on the balance sheet of your stock.
- Conference call – Earnings conference call, or quarterly conference call, or an analyst call, is an event when you call in (or go to online) to hear the company’s management discuss the past quarter’s results and to look ahead. Only a few years back these calls were only made available to Wall Street analysts and large institutional investors. The calls contain discussion of the business by both the CFO and CEO and then, typically, audience questions follow.
The Question-and-Answer period is when the real information you want is revealed. - Earnings – Earnings (aka, net income) measure the profits of the company. Earnings= Revenues (aka, sales), minus all company expenses.
- Earnings per share – Aka, EPS, is considered very important to many investors and companies. EPS: divide earnings (net income) by the total number of stock Shares Outstanding. The EPS represents your theoretical per share of stake of the company’s profits. It is also used to compute other important metrics such as EPS Growth and Price/Earnings Ratio.
- EPS Growth – EPS growth has a lot do do with the long-term success of a company. Management of the company will note EPS and its relative growth or decline. Year-over-year growth, compares time periods from one year to the previous (e.g. 2006 to 2005) Growth rate is derived by subtracting the previous EPS from the most recent EPS, then divide that sum by the previous EPS. A result of .10, means there was a 10% growth rate. Sequential EPS growth. Sequential growth represents the change from one quarter to the next (Quarter 4 2006 compared to Quarter 3 2006). Sequential growth can be deceiving because seasonal fluctuations in earnings can cause one quarter’s earnings to be lower than the previous quarter. Earnings during Christmas can blow away a company’s Q3 earnings, but that does not mean the company is doing good or bad.
- Individual Investor – Individual investors are individuals who buy and sell stocks for their own personal portfolio.
- Net Income – Same as Earnings.
- Press release – Before a conference call, many companies issue a press release. Remember that press releases are written by the companies, and not by a reporter. A press release does not necessarily reveal the truth best it is often written by the company.
- Regulation FD – Regulation FD, or “Regulation Fair Disclosure,” was first implemented by the Securities and Exchange Commision (SEC) in October 2000. All non-public information that is revealed, must be revealed to everyone at the same time.
- Stock options -Stock options are issued by companies to their employees. When these options are exercised this increases the total number of shares outstanding and therefore, decreases the earnings per share.
These are some basics that will help you get through your next earnings call.