Of all the stock market information that is available to investors, company earnings are an easy way to judge the financial health of individual companies and compare different companies to see which one is the better choice to invest in. Investors have thousands of choices and do careful analysis to find the safest options for their money. There are three ways to check on the financial health of these potential investments and two ways to know when a company is having financial problems. Good companies have consistent earnings, a competitive advantage and are well managed. Companies that miss earning estimates or have news releases on Friday afternoon may have a problem.
By comparing the earnings of different companies, it is easy to tell which companies are making money. A company with sales increasing year-over-year or quarter-over-quarter is doing well. Each company should be growing at the same rate or better than the industry they are in. The quality of management and expense control is shown when the sales go up faster than expenses.
Strong companies have a competitive advantage of some sort. They may have a superior service and product or they offer a service or product at a price that is hard for competitors to meet. A company with a good competitive advantage or strong name recognition makes a great long term investment. The management team should be stable and experienced in the industry. When key management people are leaving company, traders need to investigate to see if there will be a problem in the future and the earnings of the company drop. Well-run profitable companies appreciate and keep their management in place.
Investors are concerned when a company misses the earning estimates or have increasing accounts receivables. These indicate a lack of sales growth in information for the stock market and potential future problems. Unless there is a verifiable reason for these to have occurred, that company warrants close attention if the stock is already owned. When companies give Friday night news releases after the stock market has closed, investors should be concerned. Companies found this a good time to release bad news; they hope by Monday other events have taken place diverting investors’ attention and reducing the impact on the price of their stock shares.
Company earnings and stock market information is a good way to find companies to research for investing. Well-run companies with products consumers want make money.
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