The economy is a perpetual network of people creating and using value transactions for goods, services, or labour. The financial value of products is determined by supply/demand and supervised by the governing economic authorities. To amplify the value, people incorporate their cooperation into private companies and mass produce.

As the private sector represents a significant portion of a country’s economic production and employment, its well being is vital for the national economy. Thus, the economic bodies track the private sector performance closely and make sure corporate profits are growing to enable further expansion.

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What are Corporate Profits Reports?

Corporate Profits Reports (CPRs) are economic indicators which show the earnings of corporations in an observed time period. The term ‘Corporate Profits’ refers to the portion of revenue that remains at the disposal of a corporation after all of its expenses are paid. CPRs comprise the net income of the companies, businesses, and organisations that are included in a country’s national income account.

The entities are usually selected from major private sectors like services, manufacturing, and financials. CPR breakdown includes parameters like sector, location, and workforce to reveal the areas that perform well or poorly.

Since the private sector constitutes the largest percentage of production and employment, CPRs serve as one of the main statistics when making economic policy decisions. Central banks use corporate earnings data to predict the performance of the key economic indicators such as the Gross Domestic Product (GDP), the unemployment rate and the inflation rate. Evaluating the productivity of the private sector, the central bank makes interest rate decisions and other economic interventions.

When a corporation makes a substantial profit, it attains disposable income to pay dividends to the shareholders and enhance business operations. Business growth is achieved by increasing production, expanding the workforce, and making new investments.

Such efforts will reflect on the economy as an increased value production for GDP and it can decrease unemployment rates. In turn, more people will have financial security; thereby, the economic demand will rise and inflate consumer prices.

Corporate Profits Reports vs. Earnings Reports

Corporate Profits Reports reveal the bigger picture of national income sources or of a specific sector and include multiple companies’ income figures. Earnings Reports are issued individually by companies to inform their shareholders.

Earnings and profits can be reported differently in each type of report. For example, Quarterly Earnings Reports contain accounts such as revenue, profit, and earnings per share (EPS), while the U.S. Corporate Profits Report might exclude the EPS from the data. Moreover, although the raw figures are identical, the calculated figures can vary depending on the expenses accounted for.

How to Calculate Corporate Profits?

The calculation of corporate income and profits is similar to any other income calculations. The total income from the sales of goods and services produced by the company in a given time period is known as the revenue, and each expense type is deducted step-by-step to reach the net profit (or net income).

  • Revenue – Costs of Goods Sold (COGS) = Gross Profit
  • Gross Profit – Internal Operating Costs (e.g. wages) = Operating Profit
  • Operating Profit – Inventory and Depreciation = Book Profit
  • Book Profit – External Costs (e.g. taxes and financing interests) = Net Profit

In order to understand whether the company is actually profiting more or less, nominal income levels are adjusted to the inflation rate. Accounting for the price changes in the COGS yields the real income, which shows the true economic value of the profit. When the nominal figure rises, if the real income is attenuated due to rising inflation, it would indicate that the real corporate profits are falling.

Corporate Profits as an Economic Indicator

Corporate Profits Reports are considered as lagging economic indicators as the data shows the private sector performance in retrospect. Analysing how the CPR figures change over time in correlation to the economic conditions, the progress of the private sector and its impact can be measured.

Corporate Profits vs Economic Policies

Expansionary economic policies usually involve interest rate cuts by the central bank. As the currency strength drops, borrowing costs become more affordable, and the companies take loans to scale their operations, increase production and employ more people. With stronger financial security comes larger consumer spending; the prices will rise, production will increase, and yield higher corporate profits.

Corporate Profits vs Income and Wages

However, as consumer prices inflate, so does the cost of living. High earnings can be sustainable only if consumer spending activity is retained. Therefore, the rise in corporate profits must reflect on the income and wages of the citizens. Otherwise, the spending will drop, and CPRs will start showing a decline. The central bank is responsible for maintaining this balance by adopting contractionary measures as needed.

Corporate Profits vs Sectoral Conditions

Sectoral issues have a strong impact on corporate profits. For example, OPEC production cuts drive WTI and Brent crude oil prices higher, making the Oil corporations more profitable. However, major oil-consuming industries like Manufacturing and Tourism will be less profitable due to increased expenses. In another scenario, if consumer demand drops due to external stimuli like wars or natural disasters, the companies will purchase less Oil, and the profitability of Oil producers will drop.

How to Trade Corporate Profits Reports?

Investors use Corporate Profits Reports to gauge the private sector performance as well as its impact on the national economy. Their investment decisions form the market sentiment and inform traders about the general expectations. Before a CPR report is published, large scale investors assess the forecasts and analyse the expectations in order to take positions.

Once released, the figures are compared to the previous period as well as the same period the year before. When the results are positive, the stocks can potentially gain value as the investors try to take advantageous positions before the companies grow further. Negative outcomes, however, force investors to seek shelter and may run to safe havens like Gold.

On the other hand, if the results are mixed or deviate in the opposite direction of the forecasts, a market turmoil can cause extreme levels of volatility in both stocks and currencies, as the investors would be trying to determine what would be the overall effect of the current performance.

Key Corporate Profits Reports Around the World

U.S.

  • Region: North America
  • Date of release: Quarterly
  • Affected Assets: USD; U.S. stocks and bonds; Dow Jones, US500, US_TECH100; USD-traded commodities

E.U

  • Region: Europe
  • Date of release: Quarterly
  • Affected Assets: EUR; European stocks; DAX 30, CAC 40; government bonds of EU-members

U.K.

  • Region: Europe
  • Date of release: Quarterly
  • Affected Assets: GBP, EUR; British stocks; FTSE 100; UK Gilts

Canada

  • Region: North America
  • Date of release: Quarterly
  • Affected Assets: CAD; Canadian stocks; S&P/TSX; Canada Marketable Bonds; Crude Oil

Japan

  • Region: Asia
  • Date of release: Quarterly
  • Affected Assets: JPY; Japanese stocks; Nikkei 225; Japan government bonds

China

  • Region: Asia
  • Date of release: Monthly
  • Affected Assets: CNY, AUD, NZD; Chinese stocks; China A50; Chinese Government Bonds

Australia

  • Region: Oceania, Asia
  • Date of release: Quarterly
  • Affected Assets: AUD, NZD; Australian and New Zealand stocks and bonds; ASX 200 index

** Disclaimer – While due diligence, care and research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of trade or investment advice or recommendation and should not be construed as such.

Why Trade Corporate Profits Reports with Friedberg Direct, Powered by AvaTrade Technology?

Corporate Profits Reports are the primary indicators of the private sector in any economy. Showing the performance of the value generation machine, CPRs have the power to create large fluctuations in the stock markets as well as the currency markets.

The large variety of the trading opportunities created by CPRs can be fully capitalised on using Friedberg Direct’s professional trading tools and services.

  • When is the next CPR release? Check our economic calendar to find out the dates and times of the upcoming corporate profit reports by the major economies.
  • How stock markets react to corporate profits? Each CPR can create a butterfly effect in the global markets; you can analyse the possible outcome and decide to buy or sell CFDs on stocks and other instruments.
  • What if I need assistance? Our technical support team is happy to help you via phone, live chat, or email. However, please note that we are prohibited by regulations from providing any kind of personal outlook comments and opinions, trading advice or recommendations.

Corporate Profits reports create numerous high-return & high-risk opportunities for CFD traders. Now that you know their importance and potential effect on the economy, as well as how to analyse them, and what to trade during CPR releases, you can incorporate your knowledge into your strategy and start trading with confidence!

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