The stock market – and many investors – rely on corporate earnings to make informed investing decisions. The quarterly reports reveal how much money a public company has made and where it’s spending it. Positive reports often boost stocks, while disappointing news can cause them to plummet. The numbers also tell broader market and economic trends that can affect your portfolio.
The most basic definition of corporate earnings is profit, or net income, which is a company’s total revenue minus all its expenses. It includes all the money that’s coming in from sales and investments, as well as any proceeds from the sale of an asset or division. It excludes one-time charges, such as severance pay or the cost of restructuring.
Operating earnings, sometimes referred to as EBITDA, is another key metric that’s frequently reported alongside corporate earnings. This figure is calculated as a company’s net income minus interest, taxes, depreciation, and amortization. It’s an important metric to track because it gives you a sense of a company’s efficiency and margins, and can be used to assess its financial health.
Earnings per share (EPS) is the final number that’s commonly reported alongside corporate earnings. This metric is calculated as a company’s net earnings divided by its outstanding shares, and it’s the metric that most investors use to evaluate a company’s performance. EPS also accounts for a company’s diluted share count, which takes into account stock options and convertible securities that could increase the number of shares.