Earnings are basically the financial advantage of the performance of a company. Earnings also refers to the monetary amount on which corporate taxation is based. There are many more specialized terms for analysis of certain aspects of internal operations of a company. A company needs to obtain information regarding earnings not only to understand its business but also to know how to calculate the earnings.
Most of the company owners use the equity method to calculate the earnings by means of the equity method, i.e. deducting the equity from the total capitalization. However, many new investors in the company may not be aware of the whole stock market scenario and may fail to understand that dividends paid by the corporation are taxable and should be reported in the income statement. Earnings also include the net income or profit that accrues to the company through the sales of goods and services offered to the customers. The income statement and balance sheet are used for financial reporting purposes.
In order to determine the health of the company’s earnings and bottom line, companies usually have to undertake some sort of monitoring exercise. For this purpose, they have to make reports to the shareholders with respect to the nature and the period of time they have been trading. The auditing companies play a major role in drawing forth reports on the status of the company. They also come up with a regular report that outlines all the revenue and expenditure related to the company and the profit or loss gained or lost during the period of time that the company has been trading. These reports are essential for the investors and other traders who are interested in knowing about the health of the company’s earnings and bottom line.