How to read an earnings report like a pro

What can be the impact of positive earnings on a company's stock price?

• It always decreases the stock price.

• It has no impact on the stock price.

• It can either increase or decrease the stock price.

• It always increases the stock price.

What is the first step in calculating a company's earnings?

• Subtracting operating expenses from gross margin.

• Calculating the cost of sales.

• Determining the gross margin percentage.

• Starting with net sales.

How is the gross margin percentage calculated?

• By dividing net sales by total operating expenses.

• By subtracting cost of sales from net sales.

• By adding net sales and cost of sales.

• By dividing gross margin by net sales.

What does a decrease in the operating ratio indicate?

• The company is becoming less efficient.

• The company is spending more.

• The company is increasing its sales.

• The company is controlling costs well.

What is EBIT?

• Earnings before interest and taxes.

• Total operating expenses.

• Net income after taxes.

• Earnings before interest, taxes, depreciation, and amortization.

What can other income and expenses include?

• Only losses from foreign sales exchange rates.

• Only gains on invested cash.

• Various unrelated income and expenses.

• Only legal fees and lawsuit payments.

How is earnings per share (EPS) calculated?

• By dividing earnings by the number of outstanding shares.

• By adding other income to net sales.

• By dividing net income by total operating expenses.

• By subtracting taxes from net income.