How to read an earnings report without being led by the headline

Listed companies report on a fixed cadence, and the press release is written by the company. The regulatory filing behind it is the document that carries legal weight, and the two often emphasise different things.

GAAP, IFRS and 'adjusted'

Statutory results follow US GAAP or IFRS. Adjusted or non-GAAP measures remove items management considers non-recurring — restructuring charges, share-based compensation, acquisition costs. These can genuinely clarify underlying performance, and they can also flatter it. US rules require companies to reconcile non-GAAP measures to the nearest GAAP figure; reading that reconciliation is the fastest way to see what was removed.

Start with cash flow

Revenue recognition and provisioning give management judgement over reported profit. Cash movement is more constrained. Comparing operating cash flow with reported net income over several quarters reveals whether earnings are converting into cash — and a persistent gap deserves an explanation.

• Revenue growth split between price, volume and currency effects.
• Gross margin direction and the reason given for the change.
• Operating cash flow versus net income.
• Capital expenditure and what it is funding.
• Share count, which reveals buybacks and dilution.

Where to find the primary documents

US filings are available free through the SEC's EDGAR database. EU issuers file through national storage mechanisms feeding the European Single Access Point, and UK companies publish via regulatory news services. Going to the filing rather than the summary is a habit worth building.