Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
- Posts: 182
- Joined: Mon Nov 05, 2012 11:24 am
- Location: Huntington Beach, CA
There seems to be an emphasis for investors to focus on revenues for a company instead of earnings.
I never understood this.
It is easy to sell an item for a $1.00 that cost $1.00 to make. It seems to me that making a profit is what is important.
Is there some sort of assumption that costs of that item will fall in the future which would increase profits?
- Posts: 3450
- Joined: Mon Jan 14, 2008 10:30 am
Because it is harder to fudge revenues.
A company may report earnings increase by cutting cost and deferring maintenance. However, without revenue-generating customers, the party will stop in due time. That's why both revenues and net earnings have to be evaluated to get a more complete picture of a company's ability to sustain its earnings.
Thank goodness for Boglehead style of investing, I no longer have to worry about analyzing the financial statements for individual companies.
- Posts: 1588
- Joined: Fri May 25, 2012 9:38 am
^People care about revenues because growth in revenues is necessary for a growing economy. While we have heard tons of stories about "record earnings" these were largely achieved by reductions in the workforce and other cost-cutting measures, not "top line" growth in the number of sales.
While earnings are definitely important the growth/lack of growth in earnings is a good indicator of a company's strength.
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