Earnings and income are used interchangeably and are typically synonymous with each other. However, there are various types of earnings and income that have different meanings.
Earnings And Income
Earnings is the profit a company has earned for a period. The earnings figure is listed as net income on the income statement. When investors refer to a company's earnings, they're typically referring to net income or the profit for the period. Similarly, income is considered synonymous with net income or profit.
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. Earnings and net income can include income that's not a direct result of the sale of goods and services, which can include proceeds from the sale of an asset or division, and interest gains on investments.
Both net income and earnings are often referred to as a company's bottom line because it's the profit left over after every cost has been deducted and as a result, sits at the bottom of the income statement.
Conversely, revenue sits at the top of the income statement and shouldn't be confused with earnings or net income. Revenue is the total amount of income earned in a period before expenses have been taken out. As a result, revenue is often called the top line.
Other Types Of Income And Earnings
Retained earnings is the cumulative total of profit or net income that a company has put aside or saved for future use. Retained earnings is an important financial metric since it shows investors how much money is available to fund share buybacks, dividends, pay down debt, or invest in the company through the purchase of fixed assets. Retained earnings is listed in the shareholders' equity section of the balance sheet.
Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. In other words earnings per share is the net income or profit, after any dividends paid, divided by the average number of shares outstanding. Earnings per share serves as an indicator of a company's profitability.
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. These investments might include bonds or Treasury securities.
For more on profit and income, please read How do gross profit and net income differ?