Earnings Season 101: What You Need to Know

Four times a year, investors are bombarded with financial results during a several-week stretch known as earnings season. It's when a ton of numbers and investing acronyms are thrown around, plus endless talk of "beating" or "missing" analysts' expectations.

What does all of this earnings season talk mean for everyday investors? Individual corporate reports can affect stock prices, with better-than-expected results tending to lift a company's stock in the near-term and lower-than-expected results tending to weigh on a stock's price. Often, an earnings season will be considered in an overall context to gauge how companies and/or industries are performing.

Here's a look at the 5Ws of earnings season:

Who: Public companies trading on North American stock exchanges are required by securities regulators to report their financial statements on a quarterly basis. Companies can have different reporting periods (more on that later), but the bulk of corporate earnings tend to be reported based on a calendar year. A calendar year breaks down into quarters like this:

• First Quarter (Q1): January to March
• Second Quarter (Q2): April to June
• Third Quarter (Q3): July to September
• Fourth Quarter (Q4): October to December

What: Companies report their net income (or net loss), which is the money they bring in minus the costs of doing business. It's also broken down into earnings per share, or EPS. Most industries also report revenues or sales, which is the amount they earn selling their goods and/or services. Many investors also watch for earnings before interest, taxes, depreciation and amortization, or EBITDA, which measures a company's operational profitability. Revenue and earnings are often measured against expectations set by financial analysts. If a company's results are better than what analysts have projected, they're said to have "beat" expectations. If they fall short, they've "missed" expectations.

When: Earnings reports start to roll out in the weeks after the last month of each quarter. Based on a regular calendar year, first-quarter reports would start to ramp up starting around the third week of April. Canadian firms are required to report quarterly results within 45 days of the end of the first, second and third quarters, and within 90 days of year-end. Some companies choose to report outside of a regular calendar year. These reporting periods are known as fiscal years, or the 12 months a company uses for accounting purposes. Some companies may choose a fiscal year end because it wants its final quarter to be the strongest. For example, Apple's fiscal year-end is near the end of September, following the busy back-to-school shopping season. Some retailers, such as Macy's and Lululemon, end their fiscal years in late January after the holiday shopping season. Canada's big banks close their books on Oct. 31, based on years of tradition.

Where: In Canada, companies are generally required to release their financial results on the System for Electronic Document Analysis and Retrieval, or SEDAR, the electronic filing system used for the disclosure of documents. The Canadian Securities Administrators says companies must report material information, like financial results, using traditional press releases, but can further spread the news using social media sites. In the U.S., the Securities and Exchange Commission says companies can use social media outlets to announce earnings if investors have been made aware. Most companies also post results on their corporate websites and use traditional press release distribution services, which are often quickly picked up and reported by media outlets.

Why: Financial reporting is required for public companies. Companies that miss filing deadlines are put on a list of issuers in default and can be required to pay fines.

Fun Facts:

• For years, the unofficial kickoff to U.S. earnings season was the release of aluminum giant Alcoa's results, who was generally first out of the gate among big U.S. firms. They also often served as a benchmark of how major sectors of the economy were performing. That changed this year after Alcoa split into two companies.
• What's with Canadian banks ending their year in October? The Globe and Mail newspaper tackled the mystery in 2008, determining that the big lenders agreed to an Oct. 31 year-end in 1965 as a favour to accounting professionals who were overworked during tax season from January through April.

Specific earnings release dates can be found in a number of places, such as the Earnings & Events Calendar, as well as on stock-exchange and company websites.

*The title of this article was changed on August 11 from "The 5Ws of Earnings Season."