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.
Related or Semi-related Video
Finance: What is Earnings Quality?50 Views
Finance allah shmoop What is earnings quality Well it's just
math right Whatever Dot com just produced a dollar thirty
two in earnings One hundred thirty two cents of wall
street Love and profit How can there be a quality
to that number The number is a number right Well
yes but rather there are different qualities of earnings What
if we told you that one hundred percent of whatever
dot coms earnings came from Adsit sold tto forty thousand
different buyers because its website was just that popular All
of the growth came intrinsically meaning that users just loved
using the site and nothing meaningful changed on their balance
sheet or wall street Fancy engineers doing creative clever things
with the selling of money Other than that the cash
account went up because dead profits and they kept him
okay Those air very high quality earnings Really sure about
that C we threw a curveball in there We do
that all the time All right Well what if we
told you that seventy percent of their ad sales came
from a subsidiary in china and were all collected in
our m b the chinese currency and that in this
quarter well that the chinese currency appreciated thirty eight percent
relative to the dollar Well essentially all of their big
growth The big growth that we thought was such high
quality earnings came because the chinese currency did well not
because their business did all that well so wait Had
the chinese currency just been flat the company wouldn't have
earned anything close to a dollar thirty to seventy percent
of the sales and almost forty percent of currency gain
there Well it means that the company happened to have
a lot of sails in a country with a fast
appreciating currency It wasn't necessarily a direct reflection that the
company was doing so well and had such high quality
earnings Yeah it's great that they were in a hot
market and highly appreciating currency but if the currency hadn't
gone up so much relative to the u s dollar
in which they report their earnings toe wall street while
the real urn things end of the company would have
been more like a dollar maybe less so that it
be low quality earnings What about high quality earnings Well
really simply you said you'd sell three hundred tractors this
quarter the street thought you'd sell three hundred ten You
actually sold three hundred twenty you said margins would be
twenty percent The street thought they'd be twenty two percent
and they actually were twenty five percent You said you
generate twenty million dollars in cash the street thought you
generate twenty two and you actually did generate twenty five
million dollars in cash High quality financial results Simple You
just did your core business Selling tractors well Quality earnings 00:02:41.233 --> [endTime] quality tractors
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