financial literacy Is there a difference between a company’s profit vs earnings? Personal Finance & Money Stack Exchange

Revenue is the total amount of income earned in a period before expenses have been taken out. Earnings typically refer to after-tax net income, sometimes known as the bottom line or a company’s profits. Earnings are the main determinant of a company’s share price because earnings and the circumstances relating to them can indicate whether the business will be profitable and successful in the long run.

  • While net income is synonymous with a specific figure, profit conversely can refer to a number of figures.
  • He also spends countless hours making a permanent difference in the lives of the less fortunate by working with programs to help them become self-sufficient.
  • On the balance sheet, net earnings are included as retained earnings in the equity section.
  • Also, companies commonly report earnings per share (EPS), which indicates their earnings on a per-share basis.
  • It’s pretty basic for investors to ask for full financial statements, even if the company is private.

Overall, it is the net value a company has achieved from operating activities for a specific reporting period. Companies also portray their net earnings by dividing it over shares outstanding in identifying earnings per share (EPS) value. Investment income can be a source of income for companies as well as individual investors. A company’s income statement might have a line item that reads investment income or losses, which is where the company reports the portion of net income obtained through investments. Large difference between earnings and profits may suggest that the company spends a lot of money on unrelated activities (for negative difference) or has a lot of unrelated income (for positive difference).

Net Income

Conversely, earnings generally refers to the net profit of a business, and so is only positioned at the bottom of the income statement. It is also incorporated into the concept of earnings per share, where the net profits of a publicly-held company are divided by the number of shares outstanding to arrive at an earnings per share figure. Once the manufacturer has its gross profit, it would find its earnings before EBIT by subtracting its operating costs.

A company’s gross income is perhaps the most simple measure of the firm’s profitability. Net Income is a company’s profit after all expenses have been subtracted from total revenue. Typical expenses might include interest on loans, overhead costs called selling, general, and administrative expense, income taxes, depreciation, and operating expenses such as wages, rent, and utilities. The net earnings of a company theoretically reflect an accounting value for a specific period. After the net earnings are calculated, this value flows through to the balance sheet and cash flow statement. Accumulated earnings and profits (E&P) is an accounting term applicable to stockholders of corporations.

Income vs Revenue vs Earnings

Profits might, for example, be used to purchase new inventory for a business to sell, or used to finance research and development (R&D) of new products or services. The basic meaning of income is the amount of money an individual or an organization receives for selling goods, providing services, or investing capital. For example, as an employee in a company, income is the wage the individual earns for work rendered. Additionally, they may earn a side income from an investment portfolio of financial assets (e.g., stocks, bonds, etc.).

For more information on the difference between gross and net sales, check out this article. In some respects, it could be considered a type of revenue — but it doesn’t accurately reflect the income a business brings in and usually isn’t listed on an income statement. The tax laws do not outline how to calculate E&P and the process isn’t necessarily simple. The E&P for any year starts with the adjustable taxable income for that year. Profit and cash flow are just two of the dozens of financial terms, metrics, and ratios that you should be fluent in to make informed business decisions. By gaining a thorough understanding of key financial principles, it’s possible to advance professionally and become a smarter investor or business owner.

Stack Exchange network consists of 183 Q&A communities including Stack Overflow, the largest, most trusted online community for developers to learn, share their knowledge, and build their careers. Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

For a business, the term “earnings per share” is a way to measure the health and profitability of the company. Earnings are shown for individual shareholders and for the corporation as a whole. The term “earnings per share” relates to how the earnings of a corporation are divided among the individual shareholders. EPS is calculated as net profit divided by the number of common shares that a company has outstanding. The number represents how much money a company earns on each share of stock. Earnings and revenue are commonly used terms by companies to describe their financial performance over a period of time.

Earnings vs Profit – What’s the difference?

The costs of sales figure include only direct expenses involved in generating a company’s products. The higher the gross profit and gross profit margin the better a company is efficiently creating the core products that build its business. The costs of sales figures include only direct expenses involved in generating a company’s products. The higher the gross profit and gross profit margin, the more efficiently a company is creating the core products that build its business. Another difference is that there are several subsets of the profit concept, such as gross profit and operating profit.

Earnings, by contrast, reflect the bottom line on the income statement and are the profit a company has earned for a period. When investors and analysts speak of a company’s earnings, they’re talking about the company’s net income or profit. Retained earnings are the cumulative total of profit or net income that a company has put aside or saved for future use. Retained earnings are listed in the shareholders’ equity section of the balance sheet.

The CEO will have a fiduciary obligation to provide accurate information or face potential fraud charges. Earnings and profits are both important in considering the health of a company. Earnings over time are usually looked at for indications of growth, which some investors find more important than profit, especially in the early stages of a company. With customers, you don’t have to reveal anything and can get away with stating one vs. the other. Like cash flow, profit can be depicted as a positive or negative number.


“Earnings” and “profit” are two financial terms used to evaluate the performance and financial health of a business. They are often used interchangeably, but they can carry different connotations depending on the context. Profit is the positive amount remaining after subtracting expenses incurred from the revenues generated over a designated period of time. Profit can either be distributed to the owners and shareholders of the company, often in the form of dividend payments, or reinvested back into the company.

In the case of earnings per share, earnings means a corporation’s net income after income tax expense. However, in another context the word earnings could a quick guide to understand invoice payment terms mean an amount that is prior to income tax expense. Some people might use the word earnings to mean an amount before all expenses are considered.

If he subtracted the direct cost of selling his goods, he may see that his earnings were actually $600 USD for that time period. When he goes on to subtract all of his other related expenses, he may find that his profit is far lower than he anticipated. If a business owner begins to spend money without considering his actual profit versus earnings, he may be laying the path for financial failure. It may help to consider an example when trying to understand the difference between earnings and profit. A gift basket company, for example, may collect $5,000 US Dollars (USD) for the sale of gift baskets in the course of a week.

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