Corporations release earnings reports quarterly. The report includes a balance sheet, income statement, cash flow statement, statement of stockholders’ equity, various notes, and management’s discussion and analysis of financial condition.
An earnings call accompanies the earnings report where management discusses the quarter’s financial activities and answers questions from analysts.
The 10-K is an annual form required by the SEC in which companies provide a comprehensive report of the year’s financial activities. The 10-K contains the company’s financial statements and corporate information for the fiscal year. The 10-K fits a specific form and appearance as required by the SEC and is similar to the annual shareholder report. Annual reports are created by the company’s investor relations department and often contain presentation-quality material and visuals not included in the basic 10-K.
The 10-Q is a quarterly form required by the SEC in which companies provide a comprehensive report of the previous quarter’s financial activities. The 10-Q includes similar information as the 10-K but is less detailed and covers a shorter period of time. The 10-Q contains the company’s financial statements and corporate information for the previous three months.
Corporations have a set number of business days following the end of the quarter to file their 10-Q with the SEC. Along with the 10-Q and quarterly earnings call, companies provide forward-looking statements describing the current quarter and, often, the year ahead.
The earnings calendar provides details regarding the release of earnings reports. Earnings calendars provide the date corporate earnings will be released, the time (before the market opens or after the market closes), the previous year’s earnings for the quarter, and the consensus analyst earnings per share (EPS) forecast.
Earnings calendars are relatively stable from quarter to quarter. However, dates and times are subject to change until the company confirms the earnings release date.
Pre-market vs. post-market
Corporations do not typically release quarterly or annual earnings information during market hours. Instead, corporations release earnings and conduct an earnings call either before the market opens (pre-market) or after the market closes (post-market). Industry groups typically cluster earnings releases together and report around the same time. Post-market releases do not typically happen on Friday afternoons.
Earnings reports typically cause the most volatile price moves of the year for companies. Leading up to the earnings release, analysts speculate key metrics for companies such as earnings per share, sales per share, same-store sales growth, total sales growth, and many others.
Once the earnings report has been released, shares of the company’s stock quickly react to the new information. Shares will typically gap-up (the price of the company’s stock opens above the previous day’s close) or gap down (the price of the company’s stock opens below the previous day’s close) in reaction to the earnings announcement.
Companies with more stable earnings typically experience smaller price movements due to earnings announcements while companies with significant growth changes or new products will experience increased volatility after earnings reports.
Above-average moves are anticipated around earnings, and implied volatility rises significantly leading up to the announcement. Implied volatility then falls after the earnings report as the uncertainty is removed following the announcement.