Earnings are basically the net profits of a company’s operation over a period of time. Earnings is the accumulated amount on which corporate taxation is based. There are several other terms for which earnings are used, such as EBIT and EBITDA for an explanation of the same. The net earnings include the gross profit of the whole company less the expenses paid in the process of earning these profits, less government taxes and also other expenses, such as depreciation and interest payments.
As mentioned, earnings per share (EPS) is the most widely used term when it comes to accounting and business. The term is derived from earnings per unit, which means the gross profit per stock unit that is delivered by the product or service sold. This means that the company’s profit margin depends on how much profit is realized through the sale of a certain amount of stock (its equity). The EPS also takes into account the extent to which the company’s earnings are affected by non-recurring items such as purchases, overhead costs and inventory charges. A company’s EPS can be negative or positive; a negative EPS indicates that the company is losing money while a positive EPS indicates that the company is profiting from its ventures.
Besides the profit and loss statement, the income statement is another important statement that details the overall financial health of the company. The income statement shows all information necessary for calculating the net profit of a company. It also includes revenue, expenses and other charges, less any bonuses or stock options that a company may have earned. The income statement is prepared monthly, quarterly or annually; depending on the nature of the company.