Understanding Earnings

Earnings represent the monetary benefits of the performance of a company. Earnings per share (EPS) is the underlying value of the company’s stock that is determined on a regularly recurring basis. Earnings reflects the gross profit that the company earns within a year. Other financial measures such as income taxes, Interest income, Earnings before interest and tax (AIC), Effect of exchange rate on Earnings and trailing year profits, and net profit margin are included in earnings.

Earnings refers to the value of a firm which is determined by adding the gross sales price of the firm, the cost of goods sold, if any, and other charges, less the net Earnings / net profit. For an accounting analysis of certain aspects of organizational operations, many other more specific terms are sometimes used such as EBIT, EBITDA, gross profit, and other. Earnings usually include the gross profit, or cash from operations less any gross advertising, production and selling expenses, and non-income items such as lease depreciation and property depreciation. Net earnings, or revenues, include revenues from the sale of assets, property, plant, equipment and labor and payroll taxes.

Earnings are important for an understanding of the performance of a company. It is therefore important to determine the fundamental drivers of the company’s performance. This would lead to different ways of measuring earnings such as net income, gross profit, EBIT, and other. Different methods of measuring earnings also have different effects on the net earnings of the business.