Corporate earnings (or profits) are a key indicator of financial markets and global economics. At the simplest level, they represent company revenues minus expenses. Public companies report their earnings quarterly to meet regulatory requirements, allowing investors and traders access to consistent and accurate data. However, beyond satisfying legal obligations, earnings reporting has a major impact on market perceptions and investor expectations.
The BEA provides corporate profit reports so that Congress, policymakers, business leaders and others have the data they need to make informed decisions that affect the American economy. This includes evaluating the productivity of private domestic industries, comparing tax rates and the performance of different sectors in the economy. In addition, the BEA analyzes trends in revenue, expense and capital consumption to improve understanding of the factors that drive economic growth and decline.
When companies are efficient at converting revenues into income, they can use the extra funds for capital investment, rewarding shareholders through dividends or using them to expand their businesses. In contrast, a company that has inefficient processes and insufficient capital may find it difficult to grow or even stay profitable.
Rising EPS share data suggest that companies are finding strong demand for their goods and services, or that they have pricing power over competitors. Either way, higher EPS means that companies are able to raise prices without reducing sales or causing deflationary pressure. While investors will pay more for shares of a company with high EPS, they also expect a certain level of efficiency from the company to ensure that their money is being well spent.