What Are Earnings?
Earnings are basically the net profits of the operation of a company. Earnings refers to the income on which corporate tax is payable. Many more technical terms are also used as EBITDA and EBIT. These are basically the profits after deducting non-income items such as expenses, charges and other payments made by the company in its ordinary operations. This amount is termed as the earnings before taxes or EBT.
Other significant earnings are gross profits after deduction of expenses. Sometimes earnings are reported after taking into account the effect of certain fixed charges such as stamp duty, property tax, purchase tax, payment of debts, and interest paid on loans, and finally profits or revenues from ongoing operations. Sometimes dividends are also reported, which represent the proportion of ownership interest that a company gets from its stockholders. It varies from one dividend to another and therefore, there is no consistent definition for it.
There are many other measures that can be used to determine earnings such as gross value of the enterprise, book value, and gross profit. The first thing that should be done is to determine whether earnings are malleable or fixed. Fixed earnings refer to the earnings that would be generated irrespective of the performance of the business. Malleable earnings on the other hand refer to those earnings that can be affected by changes in the underlying prices or commodity indices. This is why it is important to choose the right measure so as to get the best possible results.