Accounting Basics – What is Earnings?

Earnings are basically the financial advantages of the performance of a company. Earnings per share (EPS) is the amount paid out by the company to its stock holders for their ownership in the company. For a more detailed explanation of certain aspects of internal operating systems and other related terms, many more technical terms are also used as EBIT and EBITDA, respectively.

Earnings per Share (EPS) can be described simply as the income that a company makes from its business operations. The profit made through earnings represents the net income of the company. The total profit of any business, including the gross profit, would be the result of all the revenues that are generated from all the sales of the products or services sold to customers in a period of time. The difference between the gross profit and the net profit, the profits margin, is the income tax expense of the company. Generally, a company needs to make earnings before it will be able to pay its taxes.

The accounting principles used in calculating earnings come from the different companies’ financial records. The accounting system of each company has various different methods of calculating the profit and loss. Some companies use the method of constant itemized earnings, while some companies’ use the method of variable itemized earnings. These two types of methodologies are essentially used because they have different assumptions and also different timing requirements when it comes to the preparation of the reports. In addition, the different companies will usually have some degree of common accounting software, which would allow them to calculate their operating income in the same manner.