What Are Earnings?
Earnings are basically the net profits of the total operation of a company. Earnings per share (EPS) is the amount paid by the shareholders for each unit of stock that they own in a company. For a company’s analysis of financial matters, many other more specific terms are also used such as EBIT and EBITDA as well as gross profit. Generally, however, earnings refers to the overall profit made by the company during a year. Some companies earn their income from services, while others produce their income from raw materials or finished products. Either way, the earnings per share is the measure of the company’s profit.
In order to track net earnings of a business during any particular quarter, a company normally reports its results of operations through reports filed with the U.S. Department of Labor (DOL) reporting office. The DOL publishes the real terms of gross sales, accumulated depreciation and other related reports on a quarterly basis. In addition to providing reports on earnings and other financial information, the government agency publishes additional reports, such as the unemployment rate and inflation, consumer price index (CPI) and the Purchasing Managers Index (PMI).
In order to calculate revenues, companies must estimate their costs and expenses related to the production of goods and services. These estimates are usually made using reported inventory, available resources, net factory overheads, current and forecasted operating revenues and expected future revenue. The difference between revenues and expenses, called EBIT or profits, is the company’s income statement. Many companies prepare their financial reports using the gross profit and report it as the gross profit per quarter instead of reporting all of the individual items contributed to the profit.