Earnings are the net profits of a company’s operation over a period of time. Earnings is the amount by which corporate tax is computed. In United States corporate taxation is based on the gross receipts or in other words taxes are collected from the income of the business. For a comprehensive analysis of certain aspects of corporate accounting various other terms are usually used as EBITDA and EBIT. Ebitda is the term given for earnings per transaction while EBIT is the term used in accounting to indicate the amount of gain per transaction.
The gross and net incomes of any business can be determined by two methods namely the income statement method and the income trend method. The income statement method is used to gather information on revenues, assets and liabilities of the business over a given period. This information thus gathered form a fairly accurate picture of the earnings of the company. On the other hand the income trend method uses certain economic indicators like the average price, income from sales and general activities to decide the earnings of a business.
There are three main principles on how to determine the profitability of the business: first, it is estimated on the basis of the past period, second the present period and third is the future period. It is expected that in every quarter the profit made will equal to the net income earned. For a company which makes profits each quarter then its fiscal year end profit will be the total profit made. Earnings per quarter is different from profit per quarter because one takes into account all the income generated during a single fiscal year.