What is an Earnings Call?

Structure of Earnings Call

The company officials give the information regarding hosting the earnings call in advance. Persons attending the event consist of media persons for event coverage, investors, and market analysts.

#1 – Safe Harbor Statement

It is a kind of disclaimer that the presentation includes the forecasted financial results, which may differ from the actual results achieved. It saves the company from any future liability since management estimates did not match the actual ones regarding its future developments.

#2 – Discussion of the Financial Results

After issuing a general safe harbor statement, the earnings call is taken over by the company’s top-level officials (such as the CEOCEOChief Executive Officer is the full form of CEO. He is the most senior member of a corporate organization, an executive who oversees the whole administration and operations of the company and reports directly to the board of directors and chairman, with the sole purpose of generating wealth for the company’s stakeholders and shareholders. read more, CFOCFOThe full form of CFO is Chief Financial Executive, and he or she is a top level executive of the firm who is responsible for the firm’s overall finance functions and has the authority to make financial decisions for the organization. read more, etc.). They present the financial results of the company achieved during the reporting periodReporting PeriodA reporting period is a month, quarter, or year during which an organization’s financial statements are prepared for external use uniformly across a period of time in order for the general public and users to interpret and evaluate the financial statements.read more. Apart from this, a discussion occurs about the company’s plans, forecasts, and roadmap.

#3 – Question and Answer Session

The next session of the earnings call is where the outside participants are given a chance to ask the company officials their queries. The company officials, if they want, may answer the questions or decline or defer the answers too.

#4 – Closing Remarks

The management gives a conclusion of all the discussions held.

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How Long is an Earnings Call?

Typically, an earnings call lasts for 45 to 60 minutes. However, there are no statutory guidelines for the call duration. Also, the course of the call majorly depends on how much time is taken in the question and answer session.

Importance

The earnings call is very important for investors and market analysts. They are informed about the company’s financial results and plans. It is a reliable source of information for them. They are also given a chance to ask the management during the question and answer session about any ambiguity they have regarding the financial results presented. The investors and the analysts use this useful information to plan their investments in the company and estimate their earningsEarningsEarnings are usually defined as the net income of the company obtained after reducing the cost of sales, operating expenses, interest, and taxes from all the sales revenue for a specific time period. In the case of an individual, it comprises wages or salaries or other payments.read more from those investments.

Advantages

  • It is an opportunity available to the company to declare its financial results to its investors, general media, and market analysts.Also, the call is important for the participants who gather financial information about the company, which thereby helps them to make their investment decisions.The participants get an opportunity to attend a question-and-answer session. They can use the same to their advantage, otherwise would not have been possible.It provides insight into the company’s plans.

Disadvantages

  • The call may be less useful and uninteresting if the company officials run the pre-recorded scripts or read out the written information.The company officials decide whom to select for question and answer sessions in a few companies. That makes the sessions boring, and the purpose of the investors and media attending the call gets defeated if such a thing happens.Analyzing the data right after the presentation of the financial results by the company officials becomes difficult, and the participants might not come up with some good quality questions.

Conclusion

Investors look forward to large companies’ earnings call to have deep insight into the company’s financial results and future goals. In addition, the company shall keep the call interesting and interactive by allowing user participation.

This article is a guide to Earnings Call and their definition. Here, we discuss the structure, importance, advantages, and disadvantages. You can learn more about it from the following articles: –

  • Earnings ManagementEarnings YieldPro-Forma EarningsForm 10-K