Reading Earnings Reports

Time: 60-90 minutes to learn + 15-30 min per earnings report Cost: $0 Platform: Ape AI (askape.com) + Company investor relations websites + EDGAR (SEC filings) Best for: Investors who want to analyze companies deeply before investing Companion: Money (for financial analysis) + Sage (for strategic insights)

What You'll Learn

By the end of this workflow, you'll be able to:

  1. ✅ Understand what earnings reports are and when they're released

  2. ✅ Navigate the key sections of a 10-Q and 10-K filing

  3. ✅ Read and interpret an income statement, balance sheet, and cash flow statement

  4. ✅ Identify red flags and positive signs in earnings reports

  5. ✅ Listen to earnings calls and extract key insights

  6. ✅ Use Money Monty to analyze complex financial data quickly

  7. ✅ Make informed investment decisions based on earnings

What are Earnings Reports?

The Basics

Earnings reports are quarterly financial updates that public companies are required to file with the SEC (Securities and Exchange Commission).

Two types:

1. Quarterly Reports (Form 10-Q)

  • Filed every 3 months (Q1, Q2, Q3)

  • ~20-50 pages

  • Not fully audited

  • Quick snapshot of quarterly performance

2. Annual Reports (Form 10-K)

  • Filed once per year (after Q4)

  • ~100-300 pages

  • Fully audited

  • Comprehensive view of entire year + business description

When are they released?

  • Companies have 45 days after quarter-end to file 10-Q

  • Companies have 90 days after year-end to file 10-K

  • Most companies release within 30-60 days

Earnings season: 4-6 week period when most companies report

  • Jan-Feb (Q4/annual results)

  • Apr-May (Q1 results)

  • Jul-Aug (Q2 results)

  • Oct-Nov (Q3 results)

Why Read Earnings Reports?

Reason #1: Get the Truth (Not the Hype)

News headlines:

  • "Apple beats earnings expectations!"

  • "Amazon misses revenue targets!"

Reality:

  • Headlines are oversimplified

  • Missing context and nuance

  • Often focusing on one metric

Earnings reports give you:

  • Complete financial picture

  • Context behind the numbers

  • Management's explanation

  • Forward-looking guidance

Example:

Headline: "Tesla misses earnings by 10%!"

After reading 10-Q:

  • Miss was due to one-time factory shutdown (temporary)

  • Revenue still up 40% year-over-year

  • Gross margins improving (positive trend)

  • Guidance raised for next quarter

Decision: Bad headline, but good fundamentals → Still bullish

Reason #2: Spot Red Flags Early

Before the stock crashes:

Example: Enron (2000-2001)

  • Reported strong earnings

  • Stock at all-time highs

  • But: 10-K showed massive off-balance-sheet debt

  • Result: Investors who read it sold early, avoided 99% loss

Example: General Electric (2017-2018)

  • Reported "adjusted" earnings (looked good)

  • But: 10-K showed deteriorating cash flow

  • Red flag: "Adjusted earnings" ≠ actual cash

  • Result: Stock crashed 60% over next year

Reading earnings = early warning system

Reason #3: Find Hidden Opportunities

Undervalued companies that the market is ignoring:

Example: Small-cap company with:

  • Boring industry (nobody pays attention)

  • Growing revenue 25%/year (10-K shows it)

  • Expanding profit margins (getting more efficient)

  • Trading at P/E of 12 (cheap!)

Market hasn't noticed yet. You reading the 10-K gives you an edge.

The Three Financial Statements

1. Income Statement (P&L - Profit & Loss)

What it shows: How much money did the company make (or lose)?

Key lines:

Revenue / Sales

  • Total money from selling products/services

  • Look for: Growing revenue year-over-year (YoY)

Cost of Goods Sold (COGS)

  • Direct costs to produce products

  • Look for: COGS growing slower than revenue (good!)

Gross Profit

  • Revenue - COGS

  • Gross Profit Margin = Gross Profit / Revenue

  • Look for: Margins improving over time

Operating Expenses

  • Sales & marketing, R&D, general & administrative (G&A)

  • Look for: These growing slower than revenue

Operating Income

  • Gross Profit - Operating Expenses

  • Operating Margin = Operating Income / Revenue

  • Look for: Positive and growing

Net Income

  • The bottom line (after taxes, interest, etc.)

  • Net Profit Margin = Net Income / Revenue

  • Look for: Positive and growing

Example: Apple Q1 2024 Income Statement (Simplified)

Analysis:

  • ✅ Revenue up 2% YoY (steady growth)

  • ✅ Gross margin 42.9% (strong pricing power)

  • ✅ Operating margin 30.5% (efficient operations)

  • ✅ Net margin 25.2% (highly profitable)

2. Balance Sheet

What it shows: What does the company own (assets) vs. owe (liabilities)?

Key sections:

ASSETS (What the company owns):

Current Assets:

  • Cash & equivalents

  • Accounts receivable (money owed by customers)

  • Inventory

Long-Term Assets:

  • Property, plant, equipment (PP&E)

  • Intangible assets (patents, trademarks)

  • Investments

LIABILITIES (What the company owes):

Current Liabilities:

  • Accounts payable (money owed to suppliers)

  • Short-term debt

Long-Term Liabilities:

  • Long-term debt

  • Deferred revenue

  • Pension obligations

EQUITY (Shareholders' value):

  • Common stock

  • Retained earnings

  • Equity = Assets - Liabilities

Example: Microsoft Balance Sheet (Simplified)

Analysis:

  • ✅ $111B cash (strong liquidity)

  • ✅ Debt: $67B total ($58B long-term + $9B short-term)

  • ✅ Debt-to-Equity: $67B / $310B = 0.22 (very low, safe)

  • ✅ Current Ratio: Current Assets / Current Liabilities = 2.5× (healthy)

Key Metrics to Calculate:

Debt-to-Equity Ratio:

Current Ratio:

3. Cash Flow Statement

What it shows: How much actual CASH did the company generate?

Why it matters:

  • Companies can manipulate earnings (accounting tricks)

  • Cash is harder to fake

  • Cash is what pays dividends, debt, and funds growth

Three sections:

Operating Cash Flow:

  • Cash from core business operations

  • Look for: Positive and growing

  • Should be > Net Income (high quality earnings)

Investing Cash Flow:

  • Cash spent on growth (buying assets, R&D, acquisitions)

  • Usually negative (companies investing for future)

Financing Cash Flow:

  • Cash from/to investors (debt, equity, dividends, buybacks)

  • Negative = paying dividends/buybacks (good!)

  • Positive = raising debt/equity (need cash, could be concerning)

Example: Amazon Cash Flow (Simplified)

Analysis:

  • ✅ $84B operating cash flow (strong core business)

  • ✅ Investing heavily ($59B) in growth

  • ✅ Paying down debt ($18B) - financially prudent

  • ✅ Net cash increased (healthy)

Key Metric:

Free Cash Flow (FCF):

Example:

  • Operating Cash Flow: $84B

  • CapEx (from investing section): $55B

  • Free Cash Flow: $84B - $55B = $29B

FCF is what the company can:

  • Pay dividends

  • Buy back stock

  • Pay down debt

  • Acquire other companies

  • Save for rainy day

Look for: FCF growing over time

Where to Find Earnings Reports

Method #1: SEC EDGAR (Official Source)

Website: sec.gov/edgar/searchedgar/companysearch

How to use:

  1. Go to sec.gov/edgar/searchedgar/companysearch

  2. Enter company name or ticker (e.g., "Apple" or "AAPL")

  3. Click search

  4. Look for "10-Q" (quarterly) or "10-K" (annual)

  5. Click on most recent filing

  6. Download PDF or view HTML

Pros:

  • Official source (100% accurate)

  • Free

  • Historical filings available (10+ years back)

Cons:

  • Interface is clunky

  • Hard to compare quarters side-by-side

Method #2: Company Investor Relations

Website: [CompanyName].com/investors

Example:

  • Apple: investor.apple.com

  • Microsoft: microsoft.com/investor

  • Tesla: ir.tesla.com

What you'll find:

  • Latest earnings reports (nicely formatted)

  • Earnings call transcripts

  • Earnings call audio/video

  • Investor presentations

  • Press releases

Pros:

  • Easy to navigate

  • Formatted for readability

  • Includes supplementary materials

Cons:

  • Company's own spin (may highlight positives, downplay negatives)

Method #3: Financial Data Platforms

Yahoo Finance: finance.yahoo.com

  1. Search ticker

  2. Click "Financials" tab

  3. View Income Statement, Balance Sheet, Cash Flow

  4. Data auto-extracted from 10-Ks/10-Qs

Seeking Alpha: seekingalpha.com

  • Earnings transcripts (free)

  • Analyst commentary

  • Community discussion

Koyfin / FinViz / TradingView:

  • Visual charting of financial data

  • Compare quarters easily

Pros:

  • Quick access

  • Easy comparison

  • Visualizations

Cons:

  • Sometimes data entry errors

  • Missing context from full report

How to Read a 10-K / 10-Q Efficiently

Don't read 300 pages cover-to-cover!

The 30-Minute Speed Read Method

Focus on these sections:

1. Item 1: Business (10-K only) - 5 minutes

  • What does the company do?

  • Who are their customers?

  • What are their revenue sources?

  • Who are their competitors?

2. Item 1A: Risk Factors - 5 minutes

  • What could go wrong?

  • Regulatory risks?

  • Competition risks?

  • Economic risks?

Skim for NEW risks (companies add risks when they're worried)

3. Item 7: MD&A (Management Discussion & Analysis) - 10 minutes

  • Management's explanation of results

  • Why revenue up/down?

  • Why margins changed?

  • Forward-looking commentary

This is the most valuable section!

4. Financial Statements - 10 minutes

  • Income Statement

  • Balance Sheet

  • Cash Flow Statement

  • Focus on trends (QoQ and YoY comparisons)

5. Notes to Financial Statements - 5 minutes (skim)

  • Accounting policies

  • Debt details

  • Share-based compensation

  • Segment breakdown

Look for:

  • Changes in accounting methods (red flag if unexplained)

  • Large one-time charges

  • Contingent liabilities

What to Look For (The Checklist)

✅ POSITIVE SIGNS:

Revenue Growth:

Profitability:

Cash Generation:

Balance Sheet:

Guidance:

❌ RED FLAGS:

Revenue Issues:

Profitability Concerns:

Cash Flow Problems:

Balance Sheet Warnings:

Accounting Red Flags:

Management Red Flags:

Using Money Monty to Analyze Earnings Reports

Instead of reading 100-page 10-K yourself, use Money Monty!

Comprehensive Earnings Analysis:

Money Monty will:

  • Read the full 10-K/10-Q for you

  • Extract key data

  • Highlight trends

  • Flag concerns

  • Provide investment perspective

Example Prompt for Specific Question:

Listening to Earnings Calls

What is an Earnings Call?

A conference call held shortly after earnings release where:

  • CEO & CFO present results

  • Analysts ask questions

  • Typically 60 minutes

When: Usually same day or day after earnings report filed

Where to find:

  • Company investor relations website

  • Seeking Alpha (transcripts)

  • YouTube (some companies livestream)

How to Listen Effectively

The 2-Part Structure:

Part 1: Prepared Remarks (20-30 min)

  • CEO discusses business highlights

  • CFO walks through financial results

  • Management provides guidance

What to listen for:

  • Tone (confident vs. defensive)

  • Focus areas (what they emphasize)

  • Buzzwords to avoid complexity

Part 2: Q&A (30-40 min)

  • Analysts ask tough questions

  • Management responds

What to listen for:

  • How management handles tough questions

  • Any evasiveness or vagueness

  • Unexpected revelations

Red Flags in Earnings Calls

❌ Management is evasive:

  • "We don't break out that metric"

  • "We'll get back to you on that"

  • "I can't comment on that at this time"

❌ Management blames externalities:

  • "The macro environment..."

  • "Supply chain issues..."

  • "Currency headwinds..."

(Some external factors are real, but if EVERY quarter has excuses...)

❌ Lots of "adjusted" or "non-GAAP" metrics:

  • "Adjusted EBITDA" (excluding 'one-time' costs)

  • "Non-GAAP earnings" (excluding stock-based comp)

Red flag if: Non-GAAP earnings >> GAAP earnings (hiding losses)

❌ CFO does most of the talking:

  • CEO should lead on business strategy

  • CFO heavy call = CEO not engaged?

❌ Guidance lowered without clear explanation:

  • "We're being prudent"

  • "Out of abundance of caution"

(Translation: They're worried but won't say why)

Green Flags in Earnings Calls

✅ Management is direct and transparent:

  • Answers questions clearly

  • Provides specific data

  • Acknowledges challenges without excuses

✅ Management raises guidance:

  • Confident in future performance

  • Seeing strong trends

✅ Insider buying mentioned:

  • "Executives are buying stock"

  • "Board approved new buyback"

✅ New products/partnerships announced:

  • Growth catalysts

  • Expanding TAM (total addressable market)

✅ Strong analyst sentiment:

  • Analysts upgrading ratings

  • Positive questions (not skeptical)

Putting It All Together: Complete Example

Example: Analyzing Apple's Q1 2024 Earnings

Step 1: Read the 10-Q

Revenue:

  • $119.6B (up 2% YoY)

  • iPhone: $69.7B (flat)

  • Services: $23.1B (up 11%)

  • Mac: $7.8B (down 11%)

  • iPad: $7.0B (down 25%)

  • Wearables: $12.0B (up 2%)

Profitability:

  • Gross margin: 42.9% (down from 43.0%)

  • Operating margin: 30.5% (down from 31.2%)

  • Net income: $30.1B (down 2%)

Cash Flow:

  • Operating cash flow: $34.4B

  • Free cash flow: $29.2B

  • FCF > Net Income ✅ (quality earnings)

Balance Sheet:

  • Cash: $166B

  • Debt: $111B

  • Net cash: $55B ✅ (strong position)

Step 2: Check Management Commentary (MD&A)

What management said:

  • iPhone revenue flat due to difficult YoY comp (Q1 2023 was huge)

  • Services growing strongly (recurring revenue)

  • Wearables (Apple Watch, AirPods) growing steadily

  • Mac/iPad weak due to tough macro for consumer electronics

Guidance:

  • Expect "low single-digit" revenue growth next quarter

  • Services to continue growing double-digits

Step 3: Listen to Earnings Call

CEO Tim Cook:

  • Highlighted installed base of 2.2 billion devices (all-time high)

  • Vision Pro (new product) launching soon

  • Confident in long-term growth

CFO Luca Maestri:

  • Margins pressured by currency headwinds (strong dollar)

  • Expect margins to improve as currency stabilizes

Q&A:

  • Analysts asked about China weakness (competition from Huawei)

  • Cook acknowledged competition but confident in differentiation

  • Buyback program continues ($90B authorized)

Step 4: Overall Assessment

Positives:

  • ✅ Strong cash flow ($29B FCF)

  • ✅ Services growing 11% (high-margin, recurring)

  • ✅ Installed base at all-time high (future services growth)

  • ✅ Massive buyback ($90B)

  • ✅ Net cash position ($55B)

Negatives:

  • ❌ iPhone revenue flat (core product stalling)

  • ❌ Mac/iPad down significantly (weak consumer demand)

  • ❌ Margins compressing slightly

  • ❌ China weakness (geopolitical risk)

Investment Decision:

  • Hold/Buy on dips

  • Core business stable (not declining)

  • Services growth offsets hardware weakness

  • Strong capital returns (buybacks)

  • Valuation reasonable (P/E ~28, not cheap but not expensive)

Risks to monitor:

  • iPhone cycle (when does next super-cycle happen?)

  • China regulatory/competition risks

  • Margin compression if continues

Success Checklist

By the end of this workflow, you should have:

🎉 Congratulations! You can now read earnings reports like a professional analyst!

What's Next?

Now that you've mastered reading earnings reports:

Related Workflows:

Continue Learning:

  • Read 10-Ks for companies you own (quarterly discipline)

  • Follow earnings season closely (learn from multiple companies)

  • Join Seeking Alpha (read analyst commentary)

  • Take accounting course (Coursera, Udemy) for deeper understanding

Practice:

  • This week: Read one 10-K start to finish (pick a company you know)

  • This month: Listen to 3 earnings calls (observe patterns)

  • This quarter: Analyze all earnings for your portfolio holdings

  • Ongoing: Read earnings reports before buying any stock

Remember: Reading earnings reports is a superpower. You'll know more than 95% of retail investors!

"The most important quality for an investor is temperament, not intellect." — Warren Buffett

But understanding earnings reports helps with both!

Your future self will thank you! 📊🔍💰

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