Corporate earnings are the money a company or corporation has made over a certain period of time. These figures are used by investors and analysts to gauge a company’s profitability. They are also used to compare a company’s performance against its competitors. Generally, higher corporate earnings allow companies more financial flexibility when it comes to capital expenditures, debt, share buybacks, and dividend payments.
The Bureau of Economic Analysis (BEA) releases aggregated corporate earnings data each quarter. These figures are used by investors and analysts, as well as Congress, policymakers, business and community leaders to make important decisions that affect the economy.
A common mistake that many novice investors and even some professionals make is equating revenue with profitability. A company can bring in millions of dollars in revenue, but still have slim to no profits if it is spending its money foolishly. For example, cutting prices or running expensive marketing campaigns will likely boost revenue, but eat into operating efficiency and cost control, ultimately leading to thin or negative profit margins.
Net income is calculated by subtracting a company’s total expenses and taxes from its revenue, providing an accurate picture of its profitability. This figure is further broken down into per-share earnings by dividing the company’s net income by its outstanding shares. Investors then use this metric to judge the profitability of each company’s core operations. A growing number of companies choose to reinvest their profits in order to improve products or develop new ones, while more mature organizations prefer to pay out dividends to shareholders.
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