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Earnings

Earnings refers to the total profits of a company. Earnings per share (EPS) is the earnings per stock unit that has been diluted divided by the number of outstanding shares or stock options (the number of stocks issued multiplied by the trading price per option). Earnings are also the amount by which company tax is payable. For an accounting of certain aspects of internal operations of the company, the term EBIT and EBITDA are often used interchangeably.

Earnings refers to cash flow from operations less the cost of capitalization less retained earnings. Cost of capitalization refers to the difference between total assets and total liabilities, less total expenses, less retained earnings and interest and dividends. Management’s goal is to cover costs of production by reducing inventory, getting rid of unprofitable investments, and cutting labor costs. The effect of all these actions reduces the company’s Earnings per Share (EPS). Thus, a company’s EPS is the excess funds it makes over its cost of capitalization divided by the total number of shares outstanding.

The term Real terms earnings indicates actual earnings from operations less the cost of capitalization less the retained earnings. Earnings per Share (EPS) measures earnings for the period of one whole trading day, ending the last business day of the Reporting period. It does not include the effect of taxes, and interest and dividends payments are included in the gross results. The concept of Earnings per Share is widely used in accounting and economics and is a key measure of company performance.