I'm new to investing, what should I look for in an earnings report?

Gonna answer this for fun while I'm waiting for dinner!

I used to work as an equity analyst back in the day and used to read annual reports on a daily basis - so this question brings back memories! Apart from the usual ratios that most people would talk about, it would help to really delve into the financials of the company, and REALLY UNDERSTAND how various ratios are calculated.

YoY (year on year) growth: This is first and foremost what a listed company's Investor Relations person (or sometimes the CEO) would talk about at each analyst meeting.

Tip: Don't just look at the YoY growth of the topline (ie. Revenue as a whole), but also look at the YoY growth of the different revenue segments.

Margin profile by revenue segments: Some businesses could have different revenue streams with really different margin profiles. For example, a business could have a very profitable hardware business with a 40% gross margin that is growing at 10% YoY, and also a new business that is at a 1% gross margin, but growing really . This means if the new business category grows 30% YoY, the consolidated gross margins for the group would go down over time. Take time to understand why the company is going into a low margin business, and how they plan to grow margin over time.

A further deep dive into operating metrics of the business. If it's a phone company, literally go down into units sold as well as average price per unit sold. If it's software, look at churn rates/renewal rates. If it's a B2B company that has most of its revenues coming from 2-3 year contracts from SMEs, understand who are their top 20 customers, and how this is changing. Often, it's not a good idea to have most of your revenues coming from a few big customers, because there is the revenue impact if these customers decide to move away to a competitor.

Balance sheet items eg. Cash and Cash Equivalents as well as Debt. Look for these items on the balance sheet and analyze how these figures are trending on a 3 or 5 year historical basis. Also look to the company's IR call transcripts, where you can get further information on how they are planning to keep cash balance, or whether they plan to pay down debt etc.

Operating vs investing vs Financing cashflow gives you a sense of where the money in the company comes in/goes out. One metric is the operating cash flow ratio which measures how well a company can pay off its current liabilities with the cash flow generated from core business operations ie. how much a company earns from its operating activities per dollar of current liabilities. This is important since earnings involve accruals and can be manipulated by creative accounting, as such the operating cash flow ratio is considered a more accurate measure of a company’s short-term liquidity.

Dinner's here!

Apart from what the others have mentioned, it would be good to pay attention to a company's cashflow statements also. A company's cashflow is quite different from just net profit of a company because they mesure 2 different things.

Since the cashflow statements are broken up into Operating, Investing and Financing, this categorisation can help you to see where is the main bulk of the cash coming from and spent on. This can give you a different perspective of the company as well, which the balance sheet and income statement may not provide. A company might have negative net profit, but still a positive cashflow because of other activities the company is undertaking.

Also, management can mask the financial health of the company through certain accounting estimates and policies in the balance sheet and income statement, but this is harder to do on the cashflow statements because it is a measure of cold hard cash.