Earnings are basically the net profits of a company’s operation. It represents the earnings of the company after all direct and indirect costs have been deducted. The company may have direct costs such as wages paid to workers and indirectly costs such as indirect costs such as overhead expenses for the operation of the business and taxes. There are many other terms used for accounting purposes, however for a detailed analysis of certain aspects of corporate functions many other more specific terms are occasionally used as EBITDA and EBIT.
A company’s net earnings or net income is the money it makes from selling its units and shares to the public. It represents the total value of all its outstanding stock, options and securities at the time of sale. The main objective of a company in making money is to accumulate a capital which represents the value of its equity. Net earnings are therefore the product of all operating expenses plus the gross profit. For a company to earn more income, it has to reduce the operating expenses plus it must increase the gross profit.
Basically the fundamental purpose of earning profits is to attract investors to invest in the company. The more investors that purchase a portion of the company’s stock then the more money the company can make. Key takeaways from this analysis is that although earnings represent the bottom line of any business it’s important not to look only at the bottom line but to also consider the total profits of a company. This represents the ultimate goal of the company. It’s the purpose that will keep the investor returning to the business.