Key Takeaways From Accounting Basics – Earnings

Earnings are the advantages of the performance of a company. Earnings refers to the amount on which tax is payable. For an accounting of certain aspects of internal operations, other more technical terms are generally used as EBIT and EBITDA respectively. These are basically the financial measures of profits of the business.

A company may show a positive cash flow and yet the net profit is much less than the gross profit shown. This is mainly because of the difference in the earnings of the income before expenses and the profit after expenses. The gross profit, however, will include the profit made on selling the products and services to the customers. The difference between the gross profit and the profit after expenses is termed as the profit margin. The profit margin gives a basis for calculating the profitability of the firm.

The key takeaways from the above are that earnings are the profits made by the business against the cost of capitalized and interest paid by it against the debts. The other main financial statement that is often used interchangeably with earnings in business reports is the statement of cash flows. Financial statements are comprehensive accounts that summarize all the financial activities of a company. They show the movement of assets or liabilities in relation to current accounts.