A Guide to Earnings

Sep 6, 2021 Uncategorized

Earnings are basically the financial benefits of the performance of a company. The earnings, as they are called, are the income on which corporate taxation is based. Generally, there are two ways by which earnings can be defined. One is total earnings and the other is gross profits. These terms for the purposes of this article are generally used interchangeably.


The other form in which earnings are measured is the gross profit/loss ratio, which is calculated as the sales price / net book value of the business less a certain percentage of the gross sales. This percentage is referred to as the gross profit / loss ratio and is one of the most widely used ratios in economics. For a more detailed explanation of certain aspects of internal operating systems and other matters of a general nature, some other more technical terms are often used as EBITDA dollars. Both are expressions that economists use when determining the cost of capital and the appropriate investment objectives.

The term ‘Earnings’ in any publication on company finance refers to the overall effect of a firm on its market price through production and sales. There are three major parts to this process called the Earnings Flow, the Income Effect and the Return on Earnings. The Earnings Flow represents the flow of funds into and out of the firm and is calculated as the average monthly earning of the firm divided by its total number of days in operation. The income effect is the change in net earnings resulting from changes in the level of production, selling, purchasing and other factors and is measured as a percentage of the gross sales of the firm divided by its average number of days in operation.

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