Back to Glossary

Definition of Earnings:

Earnings is the profit or bottom line of a company. They are the net income the company would make after tax. Simply put, it is company revenues minus all the costs and expenses incurred by the company. It is also called as net profits of the company. 
They help in determining whether the company is profitable in the long run and plays a key role in determining the share prices of the company. Investors and analysts focus on the earnings of the company and compare it with analyst estimates, its own historical earnings, and that of its contemporaries.

Why is it important to know about Earnings?

Earnings is the net profits made by the company in a given period, which is usually a quarter (3 months). Analysts keep a track of these numbers regularly to know how the company is performing. 
A company whose earnings is more than what is estimated by analysts catches the eye of the investors, while those who fail to make it consistently are considered risky investments. 

How to use Earnings?

Some common ways of measuring earnings include :

What is Earnings per Share (EPS)?

It is the ratio of a company’s profitability per share. It can be measured by dividing company’s total earnings by the number of shares outstanding. 

What is Price-to-Earnings (P/E)?

Price-to-earnings ratio is used to identify the relative value for the earning of other companies in the same industry. It is measured by dividing the share price by earnings per share. A company with a high P/E value when compared to its competitors may be overvalued and vice versa. 

What is Earnings Yield?

This is obtained by dividing the latest 12-month earnings per share by the current share price. 

What are Accumulated earnings and Retained earnings?

Accumulated earnings are the net profits of a company that are paid to shareholders as dividends. They are reinvested into the company itself. 

Retained earnings are the total income earned by the company in its lifetime, minus dividends paid to shareholders.