The Nature Of Earnings


The Nature Of Earnings

Earnings are simply the net profits of a company. Earnings also refers to the gross amount on which corporate taxation is payable. For an accounting analysis of certain aspects of company operations, some other more technical terms are usually used such as EBITDA and EBIT. These are basically derived from equation that estimates the profit made by the company over a given time period.

As the name implies, gross income represents the income of a business over and above the cost of doing business. The concept of gross income is not limited to the profit made in business. Other costs of doing business such as expenses for inventory, overhead, and supplies fall into the area of gross income. One of the major tax areas where earnings are usually taxed is the area of self-employment. Self-employed individuals are usually restricted in the things they can deduct from their earnings. Self-employed individuals have to report all income on Schedule C which falls under the tax code for self-employed individuals.

There are three major factors that affect the profitability of any business: cash flow, profit margins, and capital expenditures. Cash flow is basically the difference between the sales price and the current owed, if any, to the bank. Profit margins refer to a company’s ability to pay its bills when they are due. And, the last major factor, capital expenditures, is money used to expand the operation and make it a profitable business.