Corporate earnings are the profits a publicly-traded company generates over a period of time – typically a quarter. They are calculated by subtracting all of a company’s operating expenses from its total revenue. These figures are important to market participants and investors as they provide a glimpse into a company’s financial health. The Bureau of Economic Analysis (BEA) releases aggregated earnings data, and these reports are used by government agencies, policymakers, and business leaders to understand the economy.
While many people use the terms “earnings” and “profit” interchangeably, they are not the same thing. A company can have high revenue but still have slim or even negative earnings if its expenses are equally as high. Profitability is more than just sales, it’s about efficiency and cost control.
A company’s revenue and earnings are often the most heavily discussed topics in the news, particularly when results are either above or below expectations. Investors and market participants react quickly to earnings news, and the overall market can be influenced by the strength of or weakness in earnings results. In addition to providing insight into a company’s financial performance, earnings reports often include forward guidance and special announcements such as dividends, stock buybacks, and changes in management.
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