This time of year is what is known as “earnings season” on Wall Street. Many firms are releasing their earnings statements for the 1st quarter of 2010. They have to do this because federal regulations require the publicly traded companies file statements quarterly in the name of transparency (and taxes).

The nature of my current responsibilities requires that I pay attention to quarterly earnings (more on this at a later date), but the personal finance side of me never cared much. I paid attention to the banks since I worked in them, but otherwise quarterly earnings didn’t mean much to me. That is until the 1st quarter of 2010.

Since fall of last year people have started to feel more optimistic about our economy. Economic indicators are good way to measure the health of the economy, but in my opinion nothing beats solid earning across the board of the S&P 500. Most people are concerned about the bottom line, that is net income, or profit. I’ve never cared about that and I never will. It’s simply an accounting measure and has little to do with how much money the company is making. Besides, during the course of this recession net income has steadily increased across the board for many firms. If they’re struggling, it sure doesn’t look like it from a profit perspective.

Net income continued to look good because profit is revenue less expenses. If your revenue is down you can make profit look good by having less expenses. With layoffs and other cost cutting measures companies have continued to make decent profits. But fewer revenues and less employment are not signs of a healthy economy.

So for this earnings season I’ve been very focused on the revenue firms are making. That is, how much sales are they having? If the economy really is improving, then revenues should be up. And they are. As a precursor, the companies I am about to talk about are not recommendations for stocks but are simply companies I follow.

The best way to compare quarterly earnings is to compare the current quarter to the same quarter a year ago because of the seasonality of earnings. Best Buy has benefited from increased sales due to the Circuit City bankruptcy, but their revenue growth is still almost $2 billion more over this time last year. McDonald’s isn’t as strong, but they are still making more this quarter than this time last year. The same goes for Microsoft, which couldn’t beat Christmas sales but are still seeing growth in revenue over last year. But the company everyone seems to care about is Apple. It’s no surprise to anyone that they destroyed analyst expectations and increased their revenue over this quarter last year.

All these companies are doing extremely well. Not everyone is so fortunate, but for the most part most companies are making more money now than they were last year. The more revenue they make, the more it will cost to run their businesses because they will have to hire more people. This is good news for the economy. Make no mistake we’re still on a long road to recovery, but good revenue reports makes the journey seem a little more pleasant.

Photo: ndevil

By The Weakonomist

The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice.

categories: business, economics, personal finance