How to read an earnings report in ten minutes

Every quarter, listed companies publish results that move share prices within seconds. The full filings can run to a hundred pages, but you can understand the story behind most of them in ten minutes if you know where to look.

1. Revenue — and how it grew

Start at the top line. Compare it with the same quarter a year earlier rather than the previous quarter, because many businesses are seasonal. Growth that comes from an acquisition is not the same as growth from selling more.

2. Margins

Gross and operating margins show how much of each sale the company keeps. A business can grow revenue and still be in trouble if margins are shrinking because costs rise faster than prices.

3. Earnings per share

This is the headline number analysts compare against forecasts. Watch for “adjusted” figures that strip out costs management would rather you ignore, and read what was excluded.

4. Cash flow

Profit is an accounting opinion; cash is a fact. Free cash flow — operating cash minus capital spending — tells you whether the business funds itself or depends on borrowing.

5. Guidance

Markets trade on the future. A good quarter with a weak outlook often sends a share price down.

Read the outlook section and the first answers on the analyst call. That is where management reveals what worries them.