How to read an earnings report: revenue, margins, EPS, cash flow and guidance

An earnings report is the package a public company puts out every quarter to show what it sold, what it spent and what it kept. The headline numbers come in a press release, the full statements and footnotes come in a 10-Q or 10-K filed with the SEC, and management's outlook often comes only on the conference call. Below, Microsoft's results for the quarter ended September 30, 2026 serve as the worked example, read in the order an analyst would, with a checklist at the end that works for any company. For the basics of owning shares, see the stocks hub.

What is in an earnings report?

Most earnings reports bundle a press release, summary financial statements and adjusted figures, followed by a conference call and a formal SEC filing.

Microsoft's timetable shows how the pieces fit. On October 28, 2026 it furnished its press release on an 8-K, filed its 10-Q the same day and hosted its call at 2:30 p.m. Pacific time. Many companies file the 10-Q days or weeks after the release, so on report day investors often have only the summary to go on.

Where do you find the 8-K, 10-Q and 10-K?

All three are free on the SEC's EDGAR database, and most companies also link them from the investor relations section of their website.

The deadlines are set in federal rules. A 10-Q is due 40 days after the quarter ends for large accelerated and accelerated filers, roughly companies with $75 million or more of stock in public hands, and 45 days for everyone else. No 10-Q is filed for the fourth quarter, because the annual 10-K covers it; that report is due 60, 75 or 90 days after the fiscal year ends, depending on the same size tiers. As a large accelerated filer, Microsoft had until November 9 to file for its September quarter and did it on day 28 of the 40. A company that misses a deadline files a notice on Form 12b-25 and gets a short extension, which is worth noticing when it happens.

An 8-K reports a significant event, generally within four business days, and announcing results for a completed quarter is one such event under Item 2.02. The SEC's instructions treat Item 2.02 material as furnished rather than filed, which limits one kind of legal liability without excusing errors. The 10-Q and 10-K are filed in full, and the chief executive and chief financial officer certify them. Investor.gov adds that SEC staff review each company's reports at least once every three years, yet the agency does not vouch for their accuracy.

How do you read the revenue line?

Start with growth against the same quarter a year earlier, then find which segments and products drove it and whether any customer stands out.

Comparing with the year-ago quarter removes seasonal swings that distort quarter-to-quarter changes. Microsoft's revenue rose 19% to $92.3 billion from $77.7 billion. This fiscal year it began reporting two new segments and recast the prior year to match: Agents and Infrastructure grew 25% to $76.8 billion, while Devices and Consumer fell 3% to $15.5 billion. Within the larger segment, Azure revenue rose 48%, from $22.4 billion to $33.2 billion. Companies with large overseas sales also quote growth in constant currency, which strips out exchange-rate moves; Microsoft's call gives both versions.

Forward-looking revenue data sit alongside the reported figures. Microsoft's commercial remaining performance obligation, contracted revenue not yet recognized, rose 73% to $677 billion, while commercial bookings fell 12% against a prior year that included large Azure commitments. Then comes the detail only the 10-Q carries. Microsoft holds about 24% of OpenAI on an as-converted basis, which makes OpenAI a related party, and the notes disclose $10.0 billion of revenue from commercial arrangements with OpenAI in the quarter, about 11% of the total, plus $7.2 billion that OpenAI owed Microsoft at quarter-end. A single customer of that size is a concentration worth tracking every quarter.

What do gross and operating margins tell you?

Margins show how much of each sales dollar is left after the cost of delivering the product, and then after the cost of running the company.

The two margins moved in opposite directions, and the 10-Q explains why. It attributes the fall in Microsoft Cloud's gross margin, to 66%, to a sales mix shift toward Azure, partly offset by margin improvements within Azure itself. Operating expenses rose only 6%, or $975 million, while total headcount fell 2%, so more of each extra dollar of gross profit reached operating income. That pattern, costs growing more slowly than sales, is called operating leverage. The useful question each quarter is whether a margin change comes from pricing, product mix, one-time costs or spending discipline, because only some of those last.

How should you read EPS when GAAP and adjusted figures differ?

Read both numbers, then go through the reconciliation line by line and decide for yourself whether each excluded item is really unusual.

Regulation G requires any company that publishes a non-GAAP measure to present the most comparable GAAP figure and a quantitative reconciliation between the two, and to avoid presenting the adjusted figure in a misleading way. The reconciliation table, usually near the end of the release, is where the story behind the headline shows up.

Microsoft accounts for OpenAI under the equity method, booking its share of gains or losses in other income. A year earlier that line cut net income by $3.1 billion; this quarter it added $207 million. The 32% GAAP growth rate therefore owes much of its size to last year's loss disappearing, while the 18% rate is closer to the trend in the operating business. Either way, OpenAI is an ongoing strategic stake, so treating it as a one-off is a judgment, not a fact. Diluted EPS is usually the figure to use; it counts shares that could be issued, and here it sat just below basic EPS of $4.93 on 7.45 billion diluted shares. How EPS feeds a valuation multiple is covered in the P/E ratio explained.

Why does cash flow matter as much as profit?

Profit rests on accounting estimates and noncash items, while the cash flow statement records the money that actually came in and went out.

Free cash flow is the operating cash left after buying the servers, chips and buildings the business needs, and in this quarter it was about half of net income. The call adds a further layer: Microsoft counted $45.2 billion of capital expenditure, including $7.4 billion of finance leases that it records at their full principal value when each lease starts but pays for over time. Those leases do not appear in the quarter's cash spending, so cash-based free cash flow understates how much the company committed. Management expected spending above $50 billion in the December quarter. Other lines show where the cash went: $6.8 billion of dividends and $4.4 billion of buybacks, against $3.1 billion of stock-based pay that reduced profit but used no cash. How payouts are judged against cash flow is covered in dividend investing basics.

What is guidance, and how much weight should it get?

Guidance is management's own forecast for the next quarter or year, normally given as a range rather than a single number.

Microsoft put no outlook in its press release. On the call, its chief financial officer gave ranges for the December 2026 quarter: revenue of $96.0 to $97.1 billion, growth of 18% to 19%; Agents and Infrastructure revenue of $80.1 to $80.7 billion; Azure growth of 49% to 50% in constant currency; and capital spending above $50 billion. That is why reading only the release can miss the most market-moving part of a report.

Three comparisons make guidance useful. Set the midpoint, here $96.55 billion, against the quarter just reported, against what management said three months earlier, and against analysts' consensus, which data services publish. Guidance is hedged with cautionary language about forward-looking statements, it can be cut at the next report, and some companies give none at all. Regulation FD shapes how it is shared: a company that discloses material information to analysts or investors must make it public at the same time, or promptly if the disclosure was unintentional, which in practice means a webcast, a release or an 8-K.

What happens on the earnings call?

Executives read prepared remarks, then answer analysts' questions on a webcast that anyone can join or replay afterward.

The SEC's Form 8-K instructions let a company skip a separate filing for what it says on the call if the call follows the furnished release within 48 hours, is open to the public, and the financial figures discussed are posted on the company's website. Prepared remarks usually add segment detail, constant-currency growth and the guidance. The question-and-answer session is the part to read closely: the topics analysts press on, and how directly executives answer, show where the uncertainty lies.

Markets react within minutes. FactSet found that S&P 500 companies beating third-quarter 2026 estimates saw an average price change of +1.6% from two days before to two days after their report, against a five-year average of +0.9%, while those missing averaged −2.1%. Beating is the norm, though: 82% of companies that had reported by October 30 topped EPS estimates, but by only 1.9% in aggregate, against a five-year average of 7.5%. A beat alone says little until you see its size and quality.

What should you check in every earnings report?

Run the same short list every quarter so each result is judged against the company's own record rather than against the headline.

Doing this for four consecutive quarters shows the direction of the business more clearly than any single report. Market value and debt, the other half of judging what you pay, are covered in market cap explained, and the broader choice between studying filings and studying charts is in fundamental vs technical analysis.

What are the risks of trading on earnings news?

Prices can move several percent within minutes of a report, often in thin after-hours trading, and the first move does not always hold.

Microsoft's report on October 28, 2026 shows the pattern. The shares had closed at $531.01; the next morning they opened at $540.22, 1.7% higher, traded between $519.56 and $541.29, and closed at $530.14, slightly below where they started. Anyone who bought at the open paid for a reaction that faded within hours.

• Gaps. Results usually come out when the main session is closed, so a stock can open far from the previous close and skip past any price you had in mind; stock order types covers how limit and stop orders behave then.
• Thin trading. Extended-hours sessions have fewer buyers and sellers and wider spreads, as extended-hours trading explains.
• Misread headlines. A big GAAP jump or drop can come from investment gains, legal charges or tax items rather than the business itself.
• Guidance is not a promise. Ranges can be cut next quarter, and one strong quarter can reflect the timing of large contracts.
• Concentration. Betting on one company's report puts a single result at the center of your returns; types of investment risk sets out why spreading money across many holdings reduces that exposure.

Reading reports carefully helps you understand a business, but it does not make the next price move predictable. For prices, charts and key statistics on the example used here, see Microsoft's stock page.