Earnings – A Basic Understanding

Earnings are basically the financial benefits of the running of a business. It represents the profit realized from the activities of a business during a particular time period. Earnings per quarter is the result obtained from the whole operations of the company during a particular period. For a detailed analysis of various aspects of company operations many other more technical terms are sometimes used as EBIT and EBITDA. These terms mean Employer’s Equity, retained earnings, retained capital and net income.


The basic concept behind earnings is that they are the profits after deducting costs for sales and expenses. Generally, the company’s earnings are classified into two sections – active expenses (active) and passive expenses (passive). Active earnings reflects the revenue acquired from the sale of goods/services/assets and fixed assets; it also reflects cash collections from customers. The latter indicates the income earned by the company from its customers; and the former reflects cash payments made to the bank on its loan, mortgage interest and related charges.

Net income refers to the income resulting from the sale or transfer of assets and liabilities to and from the company, less any capital gains and dividends. This amount is the net of any income that would have been received from shareholders. It may be calculated by subtracting the total assets from total liabilities and then multiplying the result by the current outstanding stockholders’ equity (equity plus cash). All corporate stockholders are treated as owners in the process of calculating net income. Net income is then distributed between them among their respective dividends.