Read Microsoft’s October 28 Report as a Worked Example
An earnings report answers four questions. How much did the company sell? How much did it keep as profit? How much cash did it spend, and what does it expect next? So read revenue first, then compare GAAP and adjusted earnings, then check cash flow and guidance. The headline number on its own can mislead you.
Microsoft’s latest quarterly release shows why. On October 28, 2026, the company reported results for the quarter ended September 30. Revenue rose 19% to $92.3 billion. GAAP earnings per share jumped 32% to $4.92. However, adjusted earnings per share rose only 18%, to $4.89.
Both numbers are correct. They just measure different things. We took the pains to rebuild the gap ourselves from the release, line by line. Then we used the same report to walk through each part of an earnings release, so you can repeat the steps on any company.
| Line in Microsoft’s release | Quarter to Sept 30, 2026 | Change from a year earlier |
|---|---|---|
| Revenue | $92.3 billion | Up 19% |
| Operating income | $45.9 billion | Up 21% |
| Net income (GAAP) | $36.6 billion | Up 32% |
| Net income (non-GAAP) | $36.4 billion | Up 18% |
| Diluted EPS (GAAP) | $4.92 | Up 32% |
| Diluted EPS (non-GAAP) | $4.89 | Up 18% |
| Microsoft Cloud revenue | $63.9 billion | Up 30% |
| Commercial remaining performance obligation | $677 billion | Up 73% |
Microsoft is our example only. Nothing here is a view on whether to buy its shares.
Find the Release, the 10-Q and the Call
First, know the three documents. The press release comes out on results day, often after the market closes. It holds the headline numbers and short tables. The company also hosts a conference call, where managers take questions from analysts.
Next comes the Form 10-Q. Public companies file it for each of the first three quarters of their fiscal year. The SEC’s investor site notes that it “includes unaudited financial statements.” The fourth quarter is folded into the annual 10-K, which is audited.
Also check the fiscal calendar. Microsoft’s fiscal year starts in July. So the quarter to September 30, 2026 is its first quarter of fiscal 2027. Many companies do the same thing, which is why “Q1” can mean different months for different firms.
For any US-listed company, you can find all of these filings free on the SEC’s EDGAR database. The investor relations page on the company’s own website usually links the release, the slides and the call replay too.
Check Revenue Growth and Where It Came From
Revenue is the cleanest number in the report. Accounting choices touch it less than profit. So read it first, then look at the segments under it.
Microsoft’s $92.3 billion was 19% higher than a year earlier. Working backward, that implies about $77.6 billion in the same quarter last year ($92.3 billion divided by 1.19). The growth was not even, though. Azure revenue rose 48%, from $22,384 million to $33,165 million. Meanwhile, the Devices and Consumer segment fell 3%, from $16,001 million to $15,484 million.
That split tells you what is driving the company. For instance, a 19% headline can hide one business growing fast and another shrinking. Always ask which segment carried the quarter.
Watch for recast numbers as well. Microsoft changed its segments in September 2026. The release says it “recast certain prior period amounts.” So older reports will not match the new tables line for line. Compare like with like by using the prior-year figures printed in the new release.
Compare GAAP and Adjusted Earnings Per Share
GAAP earnings follow US accounting rules. Adjusted, or non-GAAP, earnings remove items that the company says distort its normal business. Both appear in most releases. The SEC requires a reconciliation of each non-GAAP measure to the nearest GAAP measure. So the bridge between them should always be in the document.
Microsoft’s bridge is a single item: its investments in OpenAI. In the latest quarter, net gains from those investments added $207 million to net income and $0.03 to EPS. So GAAP EPS of $4.92 minus $0.03 gives the adjusted $4.89.
The bigger effect sits in the year-ago quarter. Back then, net losses on the same investments cut net income by $3.1 billion and EPS by $0.41. As a result, last year’s GAAP EPS was low, and this year’s GAAP growth looks bigger.
We checked the math from both sides. Dividing $4.92 by 1.32 gives a year-ago GAAP EPS of about $3.73. Dividing $4.89 by 1.18 gives a year-ago adjusted EPS of about $4.14. The difference is $0.41, which matches the loss the release reports. So the 32% and the 18% both hold up. Microsoft says the adjusted figures show its operating performance more clearly.
Still, treat adjusted numbers with care at other companies. Some remove costs that come back every year, such as stock-based pay. Read what each adjustment is, and ask whether it really is a one-off.
Measure Margins and Cash With Four Quick Ratios
Profit totals grow when sales grow. Ratios show whether the business is getting better at turning sales into profit and cash. So we calculated four of them from Microsoft’s release.
| Ratio | How we calculated it | Result |
|---|---|---|
| Operating margin | $45.9 billion operating income / $92.3 billion revenue | 49.7% |
| Net margin (GAAP) | $36.6 billion net income / $92.3 billion revenue | 39.7% |
| Capital spending to revenue | $39,367 million additions to property and equipment / $92.3 billion revenue | 42.7% |
| Free cash flow | $58,000 million operating cash flow minus $39,367 million capital spending | $18,633 million |
The last two lines matter most this quarter. Capital spending was $19,394 million a year ago, so it roughly doubled. Free cash flow on the same basis fell from $25,663 million to $18,633 million, a drop of about 27%. In fact, profit rose while free cash flow fell, because the company spent much more on property and equipment.
Neither number is good or bad on its own. However, the gap shows why the cash flow statement deserves as much time as the income statement. For valuation, also compare the share price with sales. Our guide to the price-to-sales ratio by industry shows typical ranges by sector. For more on how cloud spending shaped this quarter, see our news report on Microsoft’s earnings and Azure capex.
Read Guidance and Backlog for Clues About Next Quarter
Past results are already in the price. That is why investors care so much about what comes next. Guidance is the company’s own forecast for the next quarter or year.
Some firms print guidance in the release. Others give it only on the call. Microsoft does the second: the release says it “will provide forward-looking guidance” on its earnings call and webcast. So if you read only the press release, you miss the outlook.
Backlog is the other clue. Microsoft reports a commercial remaining performance obligation, which is contracted revenue it has not yet recognized. That figure rose 73% to $677 billion. For comparison, that is more than seven times the quarter’s total revenue. Other companies call similar figures bookings, backlog or deferred revenue.
Read the forward-looking statements notice too. It lists the risks managers see. Microsoft’s says actual results “could differ materially” from its forecasts. So treat any guidance as an estimate.
Judge the Share Price Move Against Expectations
A stock reacts to results compared with what investors expected. Analysts publish estimates for revenue and EPS before each report, and the average of those estimates is called the consensus.
So a company can grow 19% and still see its shares fall, if investors expected more. On the other hand, a weak quarter can lift a stock when the guidance beats hopes. That is why earnings days can bring big price swings.
Then there is timing. Many companies report after the closing bell. Because of that, the first price reaction often shows up in after-hours trading and at the next day’s open. Prices in those thin sessions can move more than they do during the regular day.
If you hold the stock for its dividend, check the dates in the release as well. Our explainer on record date versus ex-date covers who gets the payout. Buying more shares after a big move? Our guide to calculating your average stock price shows how each new purchase changes your cost basis.
Use a Ten-Line Table on Any Company’s Results
We compiled this table from the steps above. It works for any listed company, large or small.
| Step | What to find | Where it sits | Microsoft example |
|---|---|---|---|
| 1 | Revenue and growth rate | First page of the release | $92.3 billion, up 19% |
| 2 | Growth by segment | Segment table | Azure up 48%; Devices and Consumer down 3% |
| 3 | GAAP EPS and adjusted EPS | Release headline and reconciliation table | $4.92 vs $4.89 |
| 4 | What the adjustments remove | Non-GAAP notes | OpenAI investment gains and losses |
| 5 | Operating margin | Income statement | 49.7% |
| 6 | Operating cash flow and capital spending | Cash flow statement | $58,000 million and $39,367 million |
| 7 | Free cash flow trend | Your own calculation | Down about 27% year over year |
| 8 | Guidance | Release or earnings call | Given on the call |
| 9 | Backlog or bookings | Release or 10-Q | $677 billion, up 73% |
| 10 | Risk factors and recasts | Forward-looking notice and footnotes | Segments recast in September 2026 |
After that, write one sentence on what changed since last quarter. If you cannot, read the call transcript. Podcasts teach this habit too, and our list of finance podcasts for investors includes shows that break down earnings every season.
What New Investors Ask During Earnings Season
What is the difference between an earnings report and a 10-Q?
The earnings report is a press release with headline numbers. The 10-Q is the full quarterly filing with the SEC. It holds unaudited statements, notes and risk factors.
Is GAAP or non-GAAP EPS the better number?
Neither one wins every time. GAAP is standard and comparable. Adjusted EPS can show the core business more clearly, but only if the removed items are really unusual.
Why did a stock fall after a good quarter?
Usually because results or guidance fell short of consensus estimates. The price reflects expectations, so a beat that is smaller than hoped can still disappoint.
When do companies report quarterly earnings?
Most report within a few weeks after each quarter ends. The 10-Q follows soon after, and the company’s investor page lists the date in advance.
What does a negative free cash flow mean?
It means the company spent more on equipment and buildings than its operations brought in. That can be fine during heavy investment, but check how it plans to fund the gap.
This article is for information and education only and is not financial advice.
