How to Measure Earnings
Earnings refers to the financial net effects of a company’s operation. Earnings per share, Earnings Before Debt, Earnings per Invest, and Earnings ratio all represent the company’s income from its equity and retained earnings. Earnings is the amount on which corporation tax is payable. Many other terms are also used as EBITDA and EBIT.
Net profits are net income less cost of earnings less cash paid in expenses. Cost of earnings refers to cost of goods sold less certain expenses not included in the selling price of the products. A company can have high gross profit but have very low net profit because it has very low EBIT or EBT. The gross profit represents the product of the firm less the cost of the selling price. Some companies have high EBT’s but have low profits.
The net income represents the income at the end of a period from the money that a company earns after all the costs have been deducted. A company earns profits when it sells its goods and receives payment for the transactions. It can also receive royalty payments and dividends. The net income will be lower than the gross profit if and when the gross profit is calculated.