Financial Notes – Earnings

Earnings are simply the financial benefits of the performance of a company. Earnings per share (EPS) is the ratio of the premium paid for the common stock issued to the shareholders on the balance sheet. In the United States, earnings refers mainly to profits earned by a company from its activities other than manufacturing and selling tangible products or services. Earnings on sales are included in earnings. Other financial measures of earnings are operating profit, gross profit, cost of sales, and income taxes.

Earnings per share (EPS) refers to the ratio of stock prices to book value of the company. The higher the ratio the better the financial results of the company. For a more accurate analysis of certain aspects of organizational operations many other more specific terms like EBIT and EBITDA are usually used. The term EBIT comes from the words earnings per share and income taxes. It indicates the profit after tax basis of the company.

There is no exact science to predict earnings of any company. However, it is always wise to stay on top of trends in the stock market, and follow the analysts advice. Most stock market experts will give their opinion that the stock price is always going to rise or fall in line with the overall financial results of the company. It is important for investors to remember that they must never correlate the stock market with the quality of the company’s financial results.