Earnings

In our capitalist, market-driven system, the basic goal of any company is to make money for shareholders. The term for that money? Earnings.

The earnings figure represents the amount of money that's left from revenues once all the expenses are paid...the legendary bottom line, adjusted for accounting charges like depreciation, amortization, and other non-cash charges.

Or, said another way, the special thing about "earnings" versus just "cash profits" is that earnings takes into account the laws of accounting, which sometimes matter a lot when calculating a final number. Like...that $100 million factory really got a lot worse this year with wear and tear. It really should have $10 million in depreciation attached to the earnings number, becuase if it doesn't, one day the company will wake up and have no factory to run its business. Earnings is basically how companies and businesses are judged...or rather, value-assessed...especially public companies trading shares on the open market.

(Note on term usage: a company's results are often referred to generally as "earnings," as in "Apple is reporting its earnings tonight." More specifically, "earnings" means the amount of profit, as opposed to a loss. So you can end up with a sentence like "In today's earnings announcement, Whirlpool revealed a quarterly loss.")

Public companies will often report a few earnings figures. They will report a total figure, often known as "net income" or "net earnings" (or "net loss," if things have been less than rosey).

Firms will also include a figure for earnings per share. This stat takes the net income number and divides it by the number of outstanding shares. The EPS number takes the earnings amount to the shareholder level.

The size of the EPS will depend both on the size of the net income figure and on the number of shares outstanding. So when describing earnings, you might say something like "GE reported earnings of $3.2 billion, or $0.32 per share." The "per share" part of the EPS figure also leads to a situation where net earnings can move up, while EPS moves down (or vice versa). This only happens under rare conditions, usually when the move in net income is fairly slight and there's simultaneously a large change in the number of outstanding shares.