Any person that takes investing seriously should have a good understanding of the basics behind investing and what makes a good investment. Unfortunately, figuring out what stocks, bonds, or equity to invest in is not a simple decision that you can make in a few minutes. If you genuinely want to make an informed decision about where your money is going, then you need to learn about the different topics surrounding stock performance, investment trends, and more.

This article will help you learn more about some of the specifics involved in investing. Below, we explain what quarterly reports, earnings, and blackout periods are, why investors care about them, and how knowing more about them might impact your investment decisions. 

What Are Quarterly Reports? 

Quarterly reports are typically a collection of unaudited financial statements. They may be balance sheets, income statements, and cash flow statements that are issued by companies every three months (every quarter). 

Most of the time, these reports contain quarterly figures as well as year-to-date comparative results, meaning this year’s quarter to last year’s quarter. All publicly-traded companies are required to file their reports with the SEC (Securities Exchange Committee), and so they are publically available to any individual.

A practice that most companies follow is to have an accounting year that ends along with the calendar year, which means that quarters end on March 31st, June 30th, September 30th, and December 31st. Typically, the reports for these quarters get filed a few weeks after they have ended. 

With that said, there are some companies that follow a different model for their quarterly reports and have a financial year that differs from the calendar one. We can take Apple as an example here, as their fiscal year generally runs from September or October to the September of the following year. 

What Are Earnings? 

Every investor and CEO is understandably a fan of “earning,” but what do earnings truly represent, and why do they matter so much? 

The simplest way to explain earnings is to say they’re the amount of money that a company makes over a particular period of time. Take a company’s revenue from selling a product or a service, subtract the costs needed to produce it, and there you have the earnings. In other words, earnings are a company’s profit (not revenue) within a quarter. There are many synonyms for this term, and the most popular ones include profit, net income, and bottom line. 

Investors put so much emphasis on earnings because they impact the prices of stocks. Strong earnings typically increase stock prices, and the reverse happens if earnings are lower. With that said, it’s not shocking to see a company with lower earnings have a rising stock price, as investors may believe the company will start being profitable at some point in the future. But, of course, there is no way to guarantee that the investors’ hopes will actually come true. 

When a company is earning money, it has two options: Either put it back into the company in the form of pay raises, improvements to products and services, and innovation or passing the money onto its shareholders in the form of a share buyback or a dividend. Smaller companies may reinvest profits to directly benefit their growth short-term, while more established companies may be more likely to pay out dividends. 

What Are Blackout Periods? 

The term “blackout period” refers to a policy or rule setting a time interval during which specific actions are either denied or limited. It’s typically used to prevent company insiders from trading stock based on the knowledge they gained while working for the company. 

Blackout periods are sometimes imposed in certain policies, activities, or contracts. For example, typically, the media imposes a blackout on all political ads for the day before the election so that a candidate can’t make an accusation that cannot be refuted or fact-checked before people start getting to the polls. With that said, the most common blackout periods limit financial transactions based on insider knowledge. 

Blackouts in Retirement Plans

Having occasional blackout periods is a common occurrence in retirement plans. During that period, employees who have invested money in the company’s retirement or investment plan cannot modify anything in their plans, which includes changing the allocation of the money or withdrawing it. The law does not limit the length of blackouts. However, if a blackout is expected to last more than a few days, the employees must receive a notice. With that said, sometimes blackout periods last months. 

Blackouts in Stock Transactions 

When publicly traded companies use blackout periods, it’s usually because they want to prevent insider trading. That’s why some of the employees of such companies might have to go through a blackout period due to their access to insider information about the company. 

The SEC prohibits all employees, even company executives, from making any trading decisions based on information about the company that is not yet public. That’s why it’s common for publically-traded companies to enforce blackout periods, especially when insiders might have access to meaningful information such as the company’s earnings. 

For example, a company can have a blackout period each quarter for a few days prior to the earnings report’s release. Other times where a blackout period might be imposed include mergers and acquisitions, the release of a new product, or the release of an initial public offering (IPO).

Blackouts in the Financial Industry

For about 20 years now, since 2003, analysts have been subject to a blackout period that stops them from publishing any reports on companies that are engaged in IPOs before they begin trading on the market or for about 40 days after that. Here, the idea of the blackout rule is to stop financial analysts from having any sort of marketing role in the IPO.

Why Do These Topics Matter to Investors? 

Ultimately, earnings measure how much a company makes and are often evaluated on a per-share basis (earnings per share). They are one of the most vital indicators of a company’s financial situation. Typically, they are released after each quarter, a total of four times per year, and are closely monitored by investors. If a company’s earnings are growing, that’s an indication that it’s on the right path. 

Quarterly reports also contain a summary of a company’s financial statements, including balance sheets and income statements. They are presented every three months and are generally used to show investors critical performance data and analysis. Most companies use them to show investors highlights from the past period, as well as to present goals for the future. Blackout periods are instruments used to prevent unfair practices from occurring on the stock market.

There are a few reasons these things matter so much to investors. Firstly, earnings, quarterly reports, and blackout periods matter to investors because they impact the prices of stocks. An annual earnings report can have a good deal of control over whether a stock will go up in price or down, and the same can be said for the quarterly reports as well.

Additionally, earnings and quarterly reports say a lot about the company’s current financial status and the management’s goals and aspirations for the future. Good financial results, combined with a nice set of achievable goals, may persuade investors into buying stock. In contrast, a bad financial year and an unconvincing quarterly report might cause some pullback.

Finally, suppose you’re both an employee at a public company and an investor. In that case, blackout periods matter because they are a tool that your employer can use to limit your actions when it comes to purchasing company stock. This is why you need to check whether you have such periods enforced in your contract. 

Conclusion 

Almost all information and details surrounding a company matter when it comes to investing. Seemingly irrelevant things like a CEO smoking marijuana on a podcast can significantly impact the stock of their business. That’s why investors frequently monitor worldwide and pop culture news, along with the financial media. 

With that said, not all information on a company has the same impact. A business’s quarterly report and earnings announcement have a much more profound and predictable effect on its stock’s price (at least for most companies). That’s why blackout periods exist to prevent people with access to that information from making trading moves before it is publicly announced. 

The impact that information has on share prices is also the reason why most investors are eager to learn the news about companies they’ve already invested in or plan to invest in. If you plan to get serious about trading in the stock market, be sure to research companies’ earnings and quarterly reports so you can make your investments with a degree of confidence. 

Having access to this kind of information gives you a way to predict potential outcomes that might develop in the market over the next few months, and looking at historical trends can help you make predictions farther ahead in the future. Still, it’s important to remember that investing always comes with risk—no matter how consistently high a company’s earnings are.

Please feel free to reach out to me on this or any of your investment needs or questions. I may not always have the answers at my fingertips, but I promise I will get them for you. Michael Torrence

Calendly link https://calendly.com/mt-awf/intro Work: 435.658.1934 Contact: 330.284.3211
Michael Torrence – Investment Advisor Representative: Michael was born and raised in Ohio and attended The Ohio State University. After College, he was commissioned as a 2ndLt in the United States Marine Corps. He attended his initial training in Quantico, Virginia, then graduated at the top of his Primary Aviator Class and was selected for the Strike (Jet) Platform.

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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. All investments involve risk including the loss of principal.