Corporate earnings are what fuel companies’ growth and ultimately pay dividends to shareholders. They are also a key component of GDP and other economic indicators used by central banks to evaluate the productivity of the private sector. The term “corporate earnings” can mean a few different things, but for the purposes of this article, we will be referring to net income earned by publicly-traded companies in a given period. This metric is reported four times per year and is followed very closely by investors, analysts, and news headlines.
Revenue and Earnings
The simplest way to think about corporate earnings is the money left over from a company’s sales after paying all of its expenses. This metric is typically reported quarterly and can be compared across industries to gauge relative success. It is important to note that revenue and profit are not the same thing, and a company’s top-line sales can easily be wiped out by high expenses.
For this reason, focusing solely on a company’s revenue numbers may be misleading. Investors and lenders look at a combination of revenue, earnings per share (EPS), and capital expenditures to get a full picture of a company’s health. It is also important to consider one-time gains or losses when comparing EPS performance, as these can artificially inflate or deflate a company’s profitability. For example, a one-time gain on the sale of a business unit could temporarily boost revenue and EPS, but these numbers should be excluded when analyzing long-term trends.