What are Company Earnings?

December 22, 2015

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Company Earnings is the difference between the Revenue and the production cost. The Earnings are usually measured over a specific period of time, generally a quarter or a year. These earnings are after tax net income. Based on the earnings, the price of company’s shares are determined. This is because, earnings indicate whether the company will be successful and profitable in long run or not.

A company’s earnings are often compared to the estimated earnings and if in case the actual earnings do not meet the estimates, the price of the company’s shares tend to decline. While on the other hand, the share prices rise when the actual earnings beat the estimates.

Company Earnings vs Profits

The difference between earnings and profit is difficult to notice yet quite significant. Earnings refer to the difference between the revenue and the production cost whereas profits refer to the difference between the total revenue and the total expenditure.

Earnings = Revenue - Production costs
Profits = Total revenue - Total expenses

Lets take an Example

If your company is making mobile phones, the earnings would be the revenue that you earn from selling phones minus the production cost

i.e. The amount spent on the raw material, equipment, salary, transportation and so on.

On the other hand, the profit would be the revenue (from sales or other sources like Bank Interest from Fixed Deposits etc.) minus expenses (which includes production cost and other expenses like building maintenance etc.).

If the difference between the earnings and the profit is too large this means that the company spends too much on the non-production related activities. This gives a bad outlook for the company.