Traders,

Let’s refresh your memory on how an earnings announcement works and what metrics matter most. First off, public companies are required to report on their performance to shareholders every single quarter. This provides transparency and accountability. Many numbers are unveiled, but Wall Street focuses on revenue, earnings per share, and forecast.

Revenue: Reflects how much the company is raking in from selling goods or services. Quality companies will increase revenue over time. This is sometimes referred to as the top line.

Earnings: If you subtract all expenses from revenue, you’ll find how much profit or earnings the company scored. To simplify the number, it’s usually stated on a per-share basis, as in earnings per share. This is sometimes referred to as the bottom line. Once again, quality companies will increase their profits over time.

Forecast: Investors are all about the future. As good as the revenue and EPS numbers might have been for the past quarter, the next quarter and year matter most. Many companies will issue a forecast during their earnings release to provide investors with a baseline of expectations.

If you want to keep tabs on an earnings scoreboard for the S&P 500 throughout this earnings season, consider following the Earnings Insight Report from FactSet. It’s updated weekly via PDF. Here’s a link to the latest one.

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Chart of the Day: Biotech (XBI)

Biotech is rising from the ashes. This morning’s gap came courtesy of M&A news. Merck is buying Prometheus Biosciences for about $11 billion. 

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