Earnings are the financial benefits of the overall operation of a company. It represents the income that accrues to the shareholders of a company, that can be divided among the different partners in the ownership structure of the company. Earnings is the amount on which tax is payable. For an assessment of certain aspects of internal corporate operations many other more technical terms are also used such as EBIT and EBITDA which stands for actual Earnings per Share and implied Earnings per Share.
Financial analysts usually use two basic types of measures to measure earnings: the Financial Measure which focuses on liquidity, profits and asset productivity, and the Financial Measurement which focuses on the operating measures of profit and loss, cash flow and balance sheet performance. Other types of financial measures that are often adopted by analysts are Business Reviews, credit ratings andhenfter more complex models that provide more detail on an companies overall performance. The key objective in measuring the profitability of a company is to achieve its long term viability and achieve the desired goals of management. Measuring the bottom line is essential to understand the health of the company as it will provide the basis for future planning, budgeting and investment.
Some measures of earnings that are used to determine the health of the company include: gross profit, gross margin, net profit, net revenue, cost of sales and net asset value per unit. Many companies use one or more of these measures to evaluate their overall profitability. One of the most widely used is gross profit which basically measures the revenue produced minus the cost of sales less any charged items. A positive gross profit figure indicates that the company is able to maximize its customer’s satisfaction and loyalty. If a company’s gross profit is less than the implied cost of production then it is considered to be in deficit, the opposite of being in surplus.