The Finance Professor: Beginner's Guide to Earnings Calls

Step 3. Listen to the Earnings Call

By law, earnings calls are open to the entire public. They are easily accessed by telephone (usually toll-free). To get the telephone number for an earnings call, check the company's Web site (the investor relations section is usually a good place to start) or the earnings release.

The earnings call is typically presented in a four-act format:

• Introduction: This is the reading of the "Safe Harbor" disclosure and some instructions from the conference call moderator.
• Welcome and overview: This is typically delivered by the chief executive officer or the most senior member of the management team who is present. Sometimes several heads of business units or divisions will also make presentations. Some key metrics and financial results will be disseminated. However, most of this portion of the call is what I call the "commercial."

  In the commercial, the company will tell you about its strategic vision for the company, new initiatives, product launches, product enhancements, the business environment and other color commentary. Some CEOs will act as salesmen, while others play the cheerleader. If necessary, during the delivery of a bad quarter the CEO will be somber, cathartic or sometimes clueless.

• Discussion of the details: The chief financial officer steps up to the microphone and delivers the financial results for the quarter. You will get most of the key line items and metrics that you prepared for. A slew of income statement , balance sheet and capitalization facts, figures and ratios will be spewed out. The numbers will fly fast and furious and, often times, may be confusing.

  Keep a pen and paper handy to scratch down the information. I also suggest having the press release handy to jot down notes.

• Question-and-answer session: Analysts and an occasional institutional investor will ask questions of the assembled management team. While management tries to limit each caller to a single question, that seldom happens. Most often, this is the longest part of the earnings call with the least value to the listener, as the analysts rarely ask thought-provoking or deeply probing questions.