The Finance Professor: Beginner's Guide to Earnings Calls

• Go back in time: Start with the prior quarter's earnings call. You can listen to an archive of the call (online) or obtain a printed transcript (for a fee). Then, query that stock on TheStreet.com, and read analysts' reports or other commentary to ascertain how the company performed in the quarter, as well as the guidance provided for the most recent quarter. As an example, read my recent Street Insight coverage of the earnings call of the casual-dining chain Brinker International(EAT Quote).
  (The EAT earnings call analysis was first published on Street Insight and was republished as a bonus for TheStreet.com readers. Street Insight provides a constant flow of earnings coverage. To learn more about Street Insight, click here.)
• Note the benchmarks and metrics: This is the most important part of the preview phase. You need to ascertain Wall Street analysts' consensus and range of estimates for EPS (earnings per share) and revenue . See how these consensus estimates have changed over the period of time since the last earnings release.

  Also, obtain the expectations for company-specific or industry-specific metrics such as same-store sale comparisons ("comps" in Wall Street vernacular), gross margins, unit sales, traffic acquisition costs and other metrics. Integrate into this analysis any preannouncements (good or bad) or intraquarter press releases, business updates, sales statements, new product releases, management changes, regulatory or legal investigations and other corporate developments or initiatives.

Step 2. Read the Earnings Release

Obtain a copy of the earnings release as soon as possible. A company's earnings press release is typically issued at least an hour prior to the commencement of the call. Some companies will issue earnings after the market has closed and conduct their conference call the following morning.

The earnings press release is made available on the company's Web site or on financial Web sites such as Yahoo! Finance or Google Finance. In addition, some companies will issue supplemental presentations that are available only on the company's Web site.

When you read the earnings release, closely review any stated benchmarks and metrics. Additionally, pay attention to any future guidance or new announcements, such as stock buyback authorization or dividend changes. Also, factor in or out one-time items, such as special tax items, write-downs or impairments, disposal of businesses (discontinued operations) and any new accounting treatments (such as stock-based compensation or "SFAS 123-R"). Factoring in or out one-time items is done to normalize the EPS to prior guidance and consensus estimates.

Finally, look at the balance sheet . Focus on changes in financial position such as cash and short-term investments, inventory, debt, deferred sales and diluted share count.