In easy-to-understand terms, a company’s earnings are its profits. Instead of just calculating all the money the business has ever generated through sales, earnings focus on the amount the business has earned.
To calculate business earnings, one must start with the revenue. Once company revenue has been calculated, subtract the total amount of money spent on producing those products that were sold. This includes material and labor, payroll, taxes, etc. The difference that you have left is a relatively accurate idea of the earnings the company is creating.
Besides offering insight into the financial health of the company, and the amount of profit that it is sustaining, company earnings are also incredibly important because of their relationship to the stock market. When company earnings are high, stock prices tend to be as well. If a company ever expects to do well in the stock market, they must be following a formula that will produce consistent earnings, as not many people are interested in an unpredictable investment.
One very important period in time to pay attention to when it comes to company earnings and stock market investment is referred to as the “earning seasons”. Theses are the traditional periods when corporations report their quarterly earnings.