How to Interpret Earnings and Loss Statement

Earnings are basically the financial benefits of the operation of a company. It is defined as revenue earned by a business from sales of the products or services offered to customers, by the workers employed by the company in the course of their employment, and also by the owners of the company (shareholders). Earnings per share is the amount by which the earnings of the company exceeds the total value of the outstanding shares of stock or equity. These include retained earnings, retained capital, and profits. There are also other similar terms such as Ebit, EBITDA, and EBT. The term Ebit is basically used to describe profits that arise from selling of dividends.

Earnings

An income statement, as the name suggests, is a statement that summarizes all the material activities associated with the business assets of the company during a particular period of time, inclusive of the revenue and expenses, and other relevant financial data. The total revenue and income can be seen on the income statement as a single statement. Other relevant financial data can be seen on the income statement such as retained earnings, income taxes, and profit margin. The purpose of an income statement is to provide all these material information to the shareholders so that they can make an informed decision as regards the performance of the company.

A profit and loss statement are usually included in the income statement along with the gross profit. This profit and loss statement shows the gross profit less any expenses such as inventory cost, special payments, and the cost of good sold. The operating profit reflects the gross profit less non-operating expenses like rent, special payments, and depreciation. The statement will show the operating profit for the entire year or for a particular period such as the three months ending in the immediately preceding year. The shareholders can therefore view the Earnings and Loss statement to understand the nature of the income statement and to determine whether the business has been adversely affected due to certain events or changes in the economy.