Understanding Earnings

Aug 19, 2021 Uncategorized

Earnings are basically the net profits of the operation of a company. Earnings per Share (EPS) is the first number on which corporate profit is calculated. Several other more technical terms are also used such as EBIT and EBITDA for an overview of certain aspects of corporate operations. Generally, Earnings refers to the income that accrues to the shareholders of the corporation and is reported during a year. The Earnings ratio, however, is not the same thing with earnings per share (EPS) because EPS includes the income statement only reflects the earnings of the corporation after all deducting fees payable to shareholders for the special interest paid in dividends.

Earnings

Earnings per Share is a common measure of earnings used by most companies today. It is mainly calculated by dividing net income less the cost of goods sold by the earnings per share. Sometimes, the word “income” is omitted from Earnings per Share to obtain the cost of goods sold figure, thus the word “earnings” is substituted. The reason for the omission of the word “income” in the definition of earnings per Share is that such measure is primarily designed to provide information about the profitability of a company rather than the overall performance of the company.

For purposes of simplicity, most businesses use the word “Earnings” to refer to the income statement of earnings. However, Earnings per Share is considered a more accurate measure of earnings because it has an accurate reflection of the underlying profit and loss situation of the business. Earnings per Share and Earnings refer to the same thing. However, Earnings per Share refers to the first number that appears on the income statement while Earnings refers to the last number that appears on the income statement.

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