Booyah Breakdown: Navigating the Earnings

Editor's note: Welcome to "Booyah Breakdown," an explanation of certain terms and topics Jim Cramer discusses on his "Mad Money" TV show. Feel free to ask a question if you're confused about something Cramer talks about, but please keep in mind that we do not provide advice on specific stocks.

As a woman who's on the dating scene, I would like everyone to just cut to the chase. If you have an artificial leg, just tell me. Criminal record? 'Fess up. An obsession with the Bon Jovi? Just spill the beans already.

Life is too short, and at some point, I am going to find out (I am a journalist, for goodness sake!)

So just be honest!

I wish I could say the same to companies reporting this earnings season. Just be upfront! Why must we go through the charade of having to figure out what the numbers really mean and what management really is trying to say?

Earnings releases aren't policed, meaning the company's auditors don't have to issue an opinion on the numbers. While many upstanding companies do have their auditors confirm the numbers, many do not.

So if no one's really looking, companies have the ability to paint a very pretty picture. There's no need to mention the bad stuff if you don't have to, right?

That is precisely why Rule No. 6 from Cramer's book is to "Please, please, do your homework." Listen to the conference calls. Go to the company's Web site. Read the research. Read the news stories. Everything's available on the Web. Everything."

That means you have be skeptical. Ask questions. And only then can you make some really good informed decisions. For instance, this past Tuesday, Cramer said was looking at United Technologies (UTX). He said, "I pored over the numbers, listened to the conference call and don't mind saying that they posted the best quarter I've ever seen so far in the early stages of this earnings season."

He did his homework and made an educated decision. Because otherwise, earnings season can be a whole lot of smoke and mirrors.

To watch Tracy Byrnes' video take of this column, click here.