Corporate earnings, or profits, are the amount of money a publicly-traded company makes in a quarter from its core business operations. These profits can be distributed to the owners and shareholders of a company in the form of dividend payments, or reinvested into the company to grow its business through things like expanding into new markets or developing new products. Over time, growing corporate earnings can lead to economic growth and prosperity for the country as a whole.
Investors, analysts, news headlines, and the public all rely on corporate earnings reports to determine if a company is successful and worth investing in. In fact, the performance of individual companies is so influential that it can even sway market indexes.
Earnings are calculated by subtracting a company’s expenses from its revenue. Revenue is the total amount of money a company receives from selling its products or services to customers. Cost of goods sold (COGS) is the total cost a company incurs to produce those products or services. Operating income is gross profit minus COGS and other non-operating expenses, such as taxes and interest payments. Net income is the company’s profits after all of these deductions are made.
While earnings can be an important indicator of a company’s health, it is important to look at the numbers with a critical eye. For example, one-time gains or losses can skew the results of an earnings report, making them appear stronger or weaker than they really are. Other factors to consider include a company’s guidance, which is a forecast of its earnings for the upcoming quarter or year, and comparisons with previous earnings reports, which can highlight trends.
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