Earnings are basically the financial benefits of the overall performance of a company. It can also be referred to as profits or surplus cash. The concept of earnings has been around since medieval times when it was used to calculate taxes. In recent times, earnings refer to the income that a company makes from its operations, especially from its sale of stock.
Earnings per share (EPS) is the most widely used financial measure of earnings for public companies. For a detailed study of certain aspects of internal operations of a company, other more specific measures are usually used as EBITDA and EBIT. A company’s profit margin is calculated using earnings per share (EPS) and the market value of the company’s stock is the price that trades hands daily.
Earnings surprises are basically the fluctuations in share price (shares outstanding divided by outstanding shares). These surprises are mainly caused by unanticipated event such as sickness, lay off, bankruptcy, dissolution and liquidity events. Earnings surprises are also affected by market forces like economic growth, inflation, deflation and interest rates. It is possible that shareholders will have to suffer a great loss if the company increases its costs without providing any increase in services. Earnings surprises are also caused by the management policies adopted by the company, changes in the financial industry and market trends, and governmental regulation changes.