Revenue:

Revenue is a top-line number that’ includes operating income and non-operating income.

“The top line is a reference to gross figures reported by a company, such as sales or revenue. It is called the top line because it is displayed at the very top of a company’s income statement” -Investopedia

Operating income is sales of products and services which happens very frequently. Non-operating income comes from the sale of company assets like equipment, land, or buildings and therefore is not reoccurring and is less frequent.

Because revenue doesn’t account for the cost of the goods sold and can include money that did not come from sales, it’s not a good indicator of a company’s financial health.

By itself, revenue doesn’t mean much because A deceptive company could buy $50 watches from its supplier and sell them for $50 to its customers (they didn’t make any money). Then sell a building for 1 Million dollars and report positive revenues based entirely on the sale of a building. 

When looking at revenue numbers it’s important to compare the companies revenue from quarter to quarter or year to year to make sure that the numbers are consistent.

Earnings per share:

“Earnings Per Share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock.” -Investopedia

Step 1.) Preferred stock is not included in the EPS calculation so to calculate earnings per share you must first subtract the preferred stock from a company’s Net income. 

Step 2.) After removing preferred stock from the net income you divide that subtracted sum with the outstanding shares 

Recap of the math:

Step 1.) Net income -preferred stock= sum

Step 2.) Sum/outstanding shares= EPS

Companies earning per share can be reported in two ways basic earnings per share and diluted earnings per share 

The basic earnings per share reports outstanding common stock shares, however, Diluted earnings per share includes common stock plus any convertible securities that can be converted into shares of stock.

Diluted earnings per share assume that convertible preferred shares, employee stock options, shares promised to creditors will all be converted into stock. Because diluted earnings per share include more stock shares in its calculation the diluted earnings per share numbers will always be lower than the basic earnings per share number.

Dilution

“Dilution occurs when a company issues new shares that result in a decrease in existing stockholders’ ownership percentage of that company.” Investopedia.

Dilution is bad for shareholders but great for the company. When a company issues new shares they can use the money they raised to create new products or pay off debt. When a company creates new shares they reduce the amount of voting power each existing shareowner has and reduce each shareholder percentage of ownership in the company.

Share dilution also reduces a company’s earnings per share which can negatively affect the share price.

Recorded October 13, 2021, 0rior to October 19 earnings release.