Earnings are basically the monetary advantages of the total operation of a company. Earnings per Share (EPS) is the measure on which corporate taxation is based. For a concise discussion of various aspects of internal organizational operations many other more technical terms are occasionally used as EBIT and EBITDA, which can be confusing to the non-financial analysts. The term ‘EBIT’ which means earnings before expenses is actually not applicable for all companies irrespective of their nature of business. Some companies enjoy tax relief by consuming the benefit of EBIT during operation whereas other companies pay tax on only part of the EBIT.
Earnings excluding the effect of impairment charges, and other items excluded in the normal course of business are calling the headline measure of earnings. The headline measure is calculated by subtracting the revenue item from the gross profit figure to get the earnings. Other items included in the headline measure are stock-based compensation, and other measures which may not necessarily be identifiable as earnings such as tax credits. For instance, if the company has purchased certain property, and it subsequently employs people to live in the property and it in turn generates rent, that would be an item included in the headline measure even though the property may not necessarily be used as an income generating activity.
The other major measure of earnings, which is generally the most direct measure of earnings is the diluted earnings per share (EPS). The diluted EPS is the weighted average of the diluted earnings per share components less the weighted average cash price divided by the total number of shares outstanding. The price is calculated by multiplying the market price by the dividend yield to get the EPS. A company may have unlimited shares but only one dividend so the EPS will be zero.