Corporate earnings, or net profit, is the amount of money a business actually makes after paying for things like salaries, operating costs, and taxes. This metric is what investors, traders, and analysts focus on when analyzing a company’s performance and financial stability. Corporate profits are also a key driver in stock prices.
Corporate earnings are calculated each quarter by subtracting a company’s total expenses from its total revenues. This figure is then divided by the number of company shares outstanding to calculate a company’s earnings per share (EPS).
Earnings reports are an important part of the financial world, and for many companies, they are one of the most important pieces of information that is publicly available. These reports give potential and current investors a look into how efficiently a company is running, and its ability to create consistent profitability.
Investors and traders use earnings reports to assess a company’s performance, and can make decisions about whether or not it is a good investment. Depending on their own individual strategies and industry sector, they may focus on different metrics in an earnings report, such as revenue trends, earnings per share, or forward guidance.
Companies can choose to reinvest their profits into their operations, or to pass them on to shareholders through dividends and share buybacks. In some cases, especially for technology companies that rely on intellectual property, they are able to generate “non-routine” profits that can be several orders of magnitude greater than routine earnings.