October 17, 2018

Earnings of a Company

5. Earnings:

 

Earnings are profits in a business. Earnings can be defined at various levels. For example, net profits are the profits available to the equity owners. Earnings before Interest and Taxes (EBIT) are available to serve both equity and debt holders. Earnings before Depreciation Interest Taxes and Amortization (EBDITA) is the earning available to a business to replace its assets over a period of time and to serve both equity and debt holders. Earnings of previous years are called historical earnings.

Example:

For example, company ABC releases information that earnings for the third quarter (Q3) have risen from $10,000,000 to $20,000,000. At the same time, company XYZ releases figures showing a drop in earnings for the same period from $900,000 to $750,000.

How to Analyse:

Earnings are the corporate profits of a company over a specific time period after taxes and other expenses have been paid. In many cases, the most important factor determining stock prices for a company is earnings. Earnings refer to the earnings of the latest four quarters, calculated on a rolling basis. So Trailing Earnings refers to earnings of 4 quarters. Earnings computed based on future projections are called forward earnings. Its always advisable to look at Quarterly, Trailing & Forward earnings to get a holistic measure of direction of a company.

The net (after-tax) earnings of a company are calculated by deducting such factors as operating expenses, cost of sales, taxes, and the like. Company earnings figures are usually released on a quarterly basis, but may also refer to annual earnings.

 

                         

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