Earnings are the financial benefits of the performance of a company. It differs from income in that profits are generated from operation of business instead of from assets, capital or accounts receivable. The earning capacity of the company could be reviewed in terms of gross profit, gross margin, net profit or weighted average sales price. The earning ratio, commonly referred to as GAAP (Generally Accepted Accounting Principles), indicates the percentage of sales earned by the company that can be charged to accounts receivable / capital. Generally, earnings per share (EPS) refers to the company’s equity measures, generally expressed as diluted share weighted average equity per share or diluted EPS.
Earnings are essential for the development of any business since they indicate the profit or loss gained from operations. Therefore, it is essential for a company to come up with reliable earnings estimates in order to provide accurate picture of company’s profitability. For a detailed analysis of certain aspects of corporate operations, different yet equally important terms are used such as EBIT, EBITDA, and gross profit. While generating profits, companies use various strategies such as purchasing certain products, selling certain products, leasing certain assets, repaying stock holders, financing transactions, and many others. These strategies help to extend profitability and raise capital.
The term net income refers to the income not associated with sales and purchases. It is the income not associated with the revenue and expenditures. Companies earn profits, which are also known as Ebit and EBITDA, from net income. This type of income is very difficult to track because it is derived form less than the full payment of the total revenues and expenditures.