Earnings might be one of the most important terms in the world of finance. From the heads of giant companies to the independent financial analysts – they all make it a point to monitor earnings. What are earnings exactly?
Simply put, earnings are profits. If company A sells X number of boxes in a year, the earnings of company A equal the amount that they get from selling the boxes, minus the cost of the boxes and everything else spent in getting those boxes sold. In short, whatever money company A makes is its earnings.
Earnings per share is a derived ratio used as a measure of comparison between companies. While one can always look at the overall earnings of companies, there is no way of knowing of exactly how much they earned relative to the number of shares outstanding. This is why earnings per share was brought about.
In order to calculate earnings per share, divide the earnings for shareholders by the number of shares outstanding. Hence, if one is trying to figure out which company made the most in a certain period of time, it is better to take a look at earnings per share.
Earnings has a lot of synonymous terms. Some of these include net income, profit, and bottom line.
Earnings may also be applied to individual or personal finance. The idea is the same as that which is used for corporations: The earnings of an individual is what money he has left after all the expenses and costs have been deducted.