The lifeblood of any public company is its quarterly earnings, and the primary way through which investors and potential investors interact with corporations is its earnings reports. Therefore, it is vital that companies present the proper information in all of their reports.
The most important piece of information in an earnings report is the company's net income (informally referred to as "earnings") over the most recent period. Because it is natural that different levels of net income be expected of differently sized companies, another important metric is earnings per share. This is what investors use to calculate the all-important price-to-earnings (or P/E) ratio. Earnings releases should also include information about year-to-date net income or - if it is the end of Q4 - yearly net income.
The next piece of information that investors want is some sort of comparison, either to the most recent quarter or to the same quarter in the previous year. For example, a Q1 2015 earnings report should also mention the earnings of the company in Q4 2014 and in Q1 2014. This helps investors understand any cyclical affects that might be affecting a company's earnings.
With those basics covered, there is now an opportunity to give further detail or contextualize the results that were reported. If the industry that a particular company is in is traditionally divided into certain sectors, then specific earnings numbers for those sectors - if available - should be given. For example, large-scale petroleum companies distinguish between "upstream" earnings (deriving from the discovery and extraction of oil) and "downstream" earnings (deriving from the refining and commercial marketing of gasoline).
Another way in which press releases should provide context to earnings numbers is through describing anything that affected the business that is outside of its normal scope of operations. If a company operates across multiple international markets, then foreign currency exchange rates could influence its bottom line in a way that is mostly out of its control. An earnings report should also mention any "exceptional" events, such as the sale of a large physical asset or the occurrence of a one-time tax penalty.
Finally, it's helpful to provide a brief synopsis of the past quarter's activity - and the company's plans for the near future - from the CEO or CFO. Quotes from high-ranking individuals can elucidate for investors the company's long-term plans. At the very least, they demonstrate that upper management is interested in the company's investors.
Jeff Ramson is the CEO of PCG Advisory Group, based in New York City; and an authority within the Investor Relations industry.
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