Earnings

A company’s earnings represent its profits or net benefits as a result of its operation.

Earnings are the net benefits of a corporation's operation. Earnings can be calculated as EBIT, i.e. earnings before interest and taxes, and EBITDA, i.e. earnings before interest, taxes, depreciation, and amortization.

Earnings are valuable tools for investors of company shares as they can often highlight a company’s financial standing and performance.

Better performances can result in strengthened share prices, while unexpectedly bad earnings can risk declines in share prices.

Using Earnings to Better Inform Investment Decisions

Many analysts also use other measures such as earnings per share (EPS) as a way to compare the earnings of multiple companies.

EPS is calculated by the remaining earnings leftover for shareholders, divided by the number of shares outstanding.

This is a more fine-tuned measure for investors and analysts given each company has a different number of shares owned by the public.

Only comparing companies' existing earnings does not accurately indicate how much money each company has for each of its shares over a specific period.

As a result, EPS is routinely used to make better-informed comparisons and forecasts.

In the US, all companies are obligated to report quarterly earnings to the public, which informs on the state of any publicly traded company.

These events are very monitored and important, especially for large corporations.

In addition, several companies are used as barometers for the state of the overall market or US economy, lending further weight to these metrics.

Ultimately, earnings are an integral element of the US stock market and ensure companies disclose their financials in ways that do not leave investors or the public in the dark.