Earnings are the profits of a company. Earnings refers to the revenue on which corporate taxation is based. Generally, earnings per share (EPS) is the measure of earnings used to calculate the company’s dividend yield. Many other terms are also used in accounting, most often EBIT and EBITDA. Other financial terms that may be encountered are operating profit, book value, free cash flow, equity, gross margin, and loan balance.
There are many other methods for measuring earnings, but the most widely used is the commonly used P/E ratio, which compares the market price of stock with the corporation’s net income. The earnings per share (EPS) is a key financial measurement that enables investors to determine the health of a company. Other commonly used ratios are PEG (price to earnings), STP (stock price to earnings), and the inverse of PEG, PEIP (price to earnings per share). A company’s stock price, commonly referred to as its “ticker” is not the only thing that an investor will want to know. To better understand what exactly the shareholder sees, other financial measures will be needed, such as the operating profit and the dividend yield to be paid out.
Investors will want to know and understand the shareholders’ equity, net worth and net profits as well as the company’s growth and financial health. In essence, the accounting standards are the same when it comes to EPS measurements, provided that a company meets the minimum standard of providing first-year reports. The EPS measures the income from the shareholders’ equity, net worth and net income. Generally speaking, the stronger a company’s net worth, the better its EPS would be. However, the EPS still reflects the bottom line profit of the company.