Q: I'm a new investor and keep hearing about "earnings season" when I'm watching the financial news. What does this mean and why should I care about it?
Publicly traded companies in the U.S. are required to report their results to investors quarterly (four times per year). When a quarter ends, companies generally present them to the public a few weeks later -- an event known as an earnings report.
There are companies reporting earnings virtually every day the market is open. However, because most use the calendar year to define their fiscal year, the majority of publicly traded companies report their earnings around the same time. This is known as "earnings season," and it starts about three weeks after a quarter ends, and the heavy earnings report volume runs for about a month.
Earnings reports are significant because they can dramatically move stock prices. Most headlines focus on the top- (revenue) and bottom-line (earnings per share) numbers, but there is a lot of important information in every earnings report.
Any positive surprises, such as beating sales targets or growing faster than expected, can send a stock rocketing higher. On the other hand, missing expectations can lead to a company's shares plunging.
The bottom line is that earnings season is an exciting time that plays a major role in the performance of most stocks, so it's a smart idea to pay attention when the stocks you're interested in issue their reports.