What Are Earnings?
Earnings are basically the financial results of a company. Earnings refers to the revenue that a firm brings in minus the expenses it incurs for its operation. Several other more technical terms are also used as EBIT and EBITDA for a detailed analysis of various aspects of company operations. The major components of earnings are net income (income from sale of goods and services and other activities), gross profit, and net loss.
Net earnings more often than not represent net profit, since the charges for operating activities are excluded in order to allow for an accurate assessment of net profit. Companies may use one of two methods to measure earnings, namely net income or gross profit. In the first method, net income is estimated by subtracting expenses from revenue. The second method, in which gross profit is estimated by adding the cost of good sold less the cost of good received, is the more common measure of earnings.
The ratio of net earnings to the total number of shareholders (the Ticker) is known as the ratios of net income to shareholders’ equity. The higher the ratios, the better the liquidity of the company with respect to the changes in stock prices. It is calculated by the following equation: net income / number of shareholders / shareholders’ equity (E/E) where N is the annual count of total shareholders and T is the annual average price per share (PPP).