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Earnings Call: a Closer Look at Financial Reports

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Earnings Call: a Closer Look at Financial Reports Earnings Call: A Closer Look at Financial Reports Bowman Asset The second quarter of the figure that often makes headlines, because 2016 marked the fifth the financial media tend to focus on whether Management, Inc. quarter in a row of companies meet, beat, or fall short of the Lina Bowman, MBA declining U.S. corporate consensus estimate of Wall Street analysts. A 17011 Kercheval Ave. earnings. Low oil prices company can beat the market by losing less Grosse Pointe, MI 48230 and a strong dollar were money than expected, or can log billions in 313-343-0800 largely to blame for profits and still disappoint investors who were lackluster financial counting on more. [email protected] results.1 www.BowmanAsset.com To help avoid surprises, many companies take Publicly traded companies are required to steps to manage the market's expectations. For report quarterly financial results to regulators example, they may issue profit warnings or and shareholders. Earnings season is the revise previous forecasts, prompting analysts to often-turbulent period when most companies adjust their estimates accordingly. Companies must disclose their successes and failures. may also be able to time certain business An earnings surprise--whether profits come in moves to help meet earnings targets. above or below the stock market's Shaping perception expectations--can have an immediate effect on In addition to filing regulatory paperwork, many a company's stock price, so it's easy to companies announce their results through understand why executives may go to great press releases, conference calls, and/or lengths to impress their investors. Earnings do webinars so they can try to influence how the represent a corporation's bottom line and are information is judged by investors, analysts, generally a key driver of the stock price over financial media, and the general public. time. Still, an earnings surprise may not be a reliable indicator of a company's longer-term Pro-forma (or adjusted) earnings may present outlook, partly because earnings figures an alternative view of financial performance by generally reflect past performance. excluding nonrecurring expenses such as restructuring costs, interest payments, taxes, Earnings are just one factor to consider when and other unique events. Although the evaluating a company's outlook. Sales Securities and Exchange Commission has rules performance, research and development, new governing pro-forma financial statements, products, consumer trends, and global companies still have a great deal of leeway to economic conditions can all affect future highlight the positive and minimize the negative results. in these reports. There may be a vast Performance watchwords difference between pro-forma earnings and A quarterly report typically includes unaudited those calculated according to GAAP. financial statements, a discussion of the The media hype surrounding earnings that business conditions that affected financial come in stronger or weaker than expected results, and some guidance about how the could distract from other important details that company expects to perform in the following may be included in a company's quarterly October 2016 quarters. Financial statements reveal the report. Understanding the reporting process quarter's profit or net income, which must be may help you ignore short-term market swings Earnings Call: A Closer Look at Financial calculated according to generally accepted and remain focused on your long-term investing Reports accounting principles (GAAP). This typically strategy. Ten Year-End Tax Tips for 2016 involves subtracting operating expenses Note: The return and principal value of stocks Top Financial Concerns of Baby Boomers, (including depreciation, taxes, and other fluctuate with changes in market conditions. Generation Xers, and Millennials expenses) from net income. Shares, when sold, may be worth more or less What are my health-care options if I retire Earnings per share (EPS) represents the than their original cost. early? portion of total profit that applies to each 1 FactSet, 2016 outstanding share of company stock. EPS is Page 1 of 4 See disclaimer on final page Ten Year-End Tax Tips for 2016 Here are 10 things to consider as you weigh advantage in doing so is that withholding is potential tax moves between now and the end considered as having been paid evenly through of the year. the year instead of when the dollars are actually 1. Set aside time to plan taken from your paycheck. This strategy can also be used to make up for low or missing Effective planning requires that you have a quarterly estimated tax payments. good understanding of your current tax situation, as well as a reasonable estimate of 6. Maximize retirement savings how your circumstances might change next Deductible contributions to a traditional IRA and year. There's a real opportunity for tax savings pretax contributions to an employer-sponsored if you'll be paying taxes at a lower rate in one retirement plan such as a 401(k) can reduce year than in the other. However, the window for your 2016 taxable income. If you haven't most tax-saving moves closes on December already contributed up to the maximum amount 31, so don't procrastinate. allowed, consider doing so by year-end. 2. Defer income to next year 7. Take any required distributions Deductions may be limited for those with high incomes Consider opportunities to defer income to 2017, Once you reach age 70½, you generally must particularly if you think you may be in a lower start taking required minimum distributions If your adjusted gross income (AGI) is more than $259,400 tax bracket then. For example, you may be able (RMDs) from traditional IRAs and ($311,300 if married filing to defer a year-end bonus or delay the employer-sponsored retirement plans (an jointly, $155,650 if married collection of business debts, rents, and exception may apply if you're still working and filing separately, $285,350 if payments for services. Doing so may enable participating in an employer-sponsored plan). filing as head of household), you to postpone payment of tax on the income Take any distributions by the date required--the your personal and dependent until next year. end of the year for most individuals. The exemptions may be phased 3. Accelerate deductions penalty for failing to do so is substantial: 50% of out, and your itemized any amount that you failed to distribute as deductions may be limited. If You might also look for opportunities to required. your 2016 AGI puts you in this accelerate deductions into the current tax year. range, consider any potential 8. Weigh year-end investment moves limitation on itemized If you itemize deductions, making payments for deductions as you weigh any deductible expenses such as medical You shouldn't let tax considerations drive your moves relating to timing expenses, qualifying interest, and state taxes investment decisions. However, it's worth deductions. before the end of the year, instead of paying considering the tax implications of any year-end them in early 2017, could make a difference on investment moves that you make. For example, your 2016 return. if you have realized net capital gains from IRA and retirement plan 4. Factor in the AMT selling securities at a profit, you might avoid contributions being taxed on some or all of those gains by For 2016, you can contribute If you're subject to the alternative minimum tax selling losing positions. Any losses over and up to $18,000 to a 401(k) plan (AMT), traditional year-end maneuvers such as above the amount of your gains can be used to ($24,000 if you're age 50 or deferring income and accelerating deductions offset up to $3,000 of ordinary income ($1,500 older) and up to $5,500 to a can have a negative effect. Essentially a if your filing status is married filing separately) traditional or Roth IRA ($6,500 separate federal income tax system with its if you're age 50 or older). The or carried forward to reduce your taxes in future window to make 2016 own rates and rules, the AMT effectively years. disallows a number of itemized deductions. For contributions to an employer 9. Beware the net investment income plan generally closes at the example, if you're subject to the AMT in 2016, end of the year, while you prepaying 2017 state and local taxes probably tax typically have until the due date won't help your 2016 tax situation, but could Don't forget to account for the 3.8% net of your federal income tax hurt your 2017 bottom line. Taking the time to investment income tax. This additional tax may return to make 2016 IRA determine whether you may be subject to the apply to some or all of your net investment contributions. AMT before you make any year-end moves income if your modified AGI exceeds $200,000 could help save you from making a costly ($250,000 if married filing jointly, $125,000 if mistake. married filing separately, $200,000 if head of 5. Bump up withholding to cover a tax household). shortfall 10. Get help if you need it If it looks as though you're going to owe federal There's a lot to think about when it comes to tax income tax for the year, especially if you think planning. That's why it often makes sense to you may be subject to an estimated tax penalty, talk to a tax professional who is able to consider asking your employer (via Form W-4) evaluate your situation and help you determine to increase your withholding for the remainder if any year-end moves make sense for you. of the year to cover the shortfall.
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