Understanding Earnings Per Share

Earnings are the financial benefits of the performance of a company. They are also known as equity. Earnings refers to the whole amount on which corporate tax is payable. A company’s shareholders, also referred to as owners, pay corporate taxes on their annual income or sales of stock. The corporate tax payable on earnings is known as EBIT or EBITDA.


There are many ways to measure earnings such as net profit, gross revenue, net income, and profitability. Net profit is a company’s income from its total sales less total costs of goods sold. Gross profit is the value of goods sold less the cost of good sold less any gross profits. Net income is the difference between total revenues and total expenses. Profitability is the value of stock price less the net worth of stock ownership.

There are many financial measures used to determine the health of a company. The most common measure of profitability is net profit and stock price. Many other measures such as gross and net profit margin, gross and net profit outlook, and customer loyalty are also used. Many investors base their investments on the analysis of earnings per share (EPS) and the corporation’s other financial measures.