Earnings vs. Income

Earnings refers to the financial benefits of the overall performance of a company. Generally speaking, earnings are the cash flow improvements resulting from increases in sales. The more sales a firm produces, the more it earns. Generally, earnings are also the amount that corporate tax is computed on.

For an overview of certain aspects of corporate operations many other more technical terms are often used as EBIT and EBITDA, for example net income (or NANO), gross profit, and income taxes. Among these, EBIT stands for Earnings before Interest and Other Taxes (which include corporate taxes) and EBITDA for Financial Debt. Sometimes investors use both terms interchangeably with one another. However, they have different meaning and differences in the manner in which they are reported in a company’s financial statements. They are therefore not interchangeable with each other and their use would not be appropriate in any circumstance where one was being used while the other was not.

When we speak of “earnings” as a single entity, then there are two distinct kinds: those that are recorded by gross revenue and those that are recorded by gross profit. The former is the more significant of the two, since it represents the income realized directly from sales; while the latter, which includes the latter, is the more appropriate measure of earnings used by the accounting profession. For instance, suppose you sell some merchandise to your customers and you get paid a commission for that sale. The gross sale part of your earning would be the measurement of your earnings, while the gross profit part would be your measurement of your profits.