With inflation rising and fears of recession, watch out for these 3 key numbers in company earnings reports

People deciding where to invest their cash — or whether to even do it at all — have questions about the possibility of recession, how much inflation is squelching consumer demand and when prices could be cooling.

The parade of profits, losses and projections happens every quarter under U.S. rules. The numbers also offer a peek at the financial health of consumers and the broader economy. The Dow Jones Industrial Average DJIA, -0.46%, S&P 500 SPX, -0.30% and Nasdaq Composite COMP, +0.03% all opened sharply lower on Thursday. The Dow dropped roughly 550 points, or 1.8%, the S&P declined 1.5% and the Nasdaq dropped by 1.4% as investors braced for earnings season and mulled the Federal Reserve’s next move to tame inflation.

Then it becomes a matter of whether investors with quarterly results in hand should even act on those answers. While some metrics can give company earnings a rosier hue, Campos said the free cash flow is one good way to gain “more signal from noise right now” about a company’s capacity to operate. 2. Profit margin Investors will also want to know how companies are managing expenses, between inflating prices and wages to hold workers in a tight labor market, Campos said.“The net profit margin is important to watch because it indicates how well companies are handling higher costs,” said John Butters, FactSet vice president and senior earnings analyst. “With inflation running at some of the highest levels in 40 years, companies are facing increased costs.

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