Earnings are basically the net profits of a company’s operations over a given period. Earnings per Share (EPS) is the exact opposite of Earnings. For a concise analysis of certain aspects of corporate operations many more specific terms are also used as EBIT and EBITDA respectively. It has been perceived in many corporate finance circles that Earnings and EBIT are actually the same thing, but in actual fact they are not. An explanation is provided for this in the financial statement analysis below:
Earnings refers to the income from operations less expenses, less lease and interest paid, less capital gain, less taxes (such as Federal, State and Local) and less payroll tax. The amount by which Earnings exceed the Cost of Goods sold (COG) is termed net Earnings. The concept of Earnings per Share (EPS) is widely used in the United States and other countries throughout the world, where companies calculate EBITDA or Earnings per Trading Day using net earnings from their businesses. In the United States and in many other countries, companies calculate Earnings per Share using the average gross sale price per stock issued during the trading day. Companies therefore either issue cash dividends or earn through the use of the shareholders equity, also known as retained earnings.
Earnings can either be retained earnings or net profits. Revenues acquired from customers are referred to as retained earnings and revenues acquired from vendors are referred to as net profits. It should be kept in mind that the term’revenues’ is not synonymous with the term’revenues’ in earnings accounting and therefore profits and retained earnings are different entities. There are many other terms and concepts in the financial accounting world, which are commonly used in accounting and business, including gross profit, book value, cost of goods sold, cost of capital employed, net worth, equity, and retained earnings.