What are 'Earnings'
Earnings typically refer to aftertax 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. Earnings are perhaps the single most important and most studied number in a company's financial statements, because they show profitability compared with analyst estimates and company guidance. They can also be used to compare a company's performance over time and relative with its competitors and industry peers. Companies typically report earnings on both a quarterly and annual basis, and earnings reported that deviate from analysts' expectations can have large impacts on stock price. For instance, if analysts on average estimate that earnings will be $1 per share and they come in at just $0.80 per share, the price of the stock is likely to fall on that miss.
BREAKING DOWN 'Earnings'
Earnings are the amount of profit that a company produces during a specific period, which is usually defined as a quarter (three calendar months) or a year. Every quarter, analysts wait for the earnings of the companies they follow to be released. Earnings are studied because they represent a direct link to company performance. A company that beats estimates is outperforming its peers; thus, the CEO may be praised and the board may pat itself on the back. A company that misses earnings is considered to be underperforming its peers, so the CEO will be blamed and the board may elect a new chief executive.
Measures and Uses of Earnings
There are many different measures and uses of earnings. Some analysts like to calculate earnings before taxes. This is referred to as pretax income, earnings before taxes, or EBT. Some analysts like to see earnings before interest and taxes, or EBIT. Still other analysts, mainly in industries with a high level of fixed assets, prefer to see earnings before interest, taxes, depreciation and amortization, also known as EBITDA. All three measures provide varying degrees of measuring profitability.
Earnings Per Share, Price to Earnings, and Earnings Yield
Earnings per share (EPS) is a commonly cited ratio used to show the company's profitability on a pershare basis, and is calculated by dividing the company's total earnings by the number of shares outstanding. It is also commonly used in relative valuation measures such as the pricetoearnings ratio (P/E) ratio. The pricetoearnings ratio, calculated as share price divided by earnings per share, is primarily used to find relative values for the earnings of companies in the same industry. A company with a high P/E ratio relative to its industry peers may be considered overvalued. Likewise, a company with a low price compared with the earnings it makes might be undervalued. The earnings yield, or the earnings per share for the most recent 12month period divided by the current market price per share, is another way of measuring earnings, and is in fact just the inverse of the P/E ratio.
Earnings Manipulation
Since corporate earnings are such an important metric and have a direct impact on share price, managers may be tempted to manipulate earnings figures. This practice is both illegal and unethical. Some companies intentionally manipulate earnings directly higher on their financial statements in order to hide deficiencies in their accounting practices or to cover for unanticipated drops in sales. These companies are said to have a poor or weak quality of earnings. Earnings per share can also be manipulated higher, even when earnings are down, with share buybacks or other methods of changing the number of shares outstanding. Companies can do this by repurchasing shares with retained earnings or debt in order to make it appear as if they are generating greater profits per share. Other companies may purchase a smaller company with a higher P/E ratio to "bootstrap" their own numbers into appearing more favorable. When earnings manipulations are revealed, as in the case with Enron or Worldcom, the accounting crisis that follows often leaves shareholders on the hook for rapidly declining stock prices.

Forward Price To Earnings  Forward ...
Forward price to earnings (forward P/E) is a measure of the pricetoearnings ... 
PriceEarnings Ratio  P/E Ratio
The PricetoEarnings Ratio or P/E ratio is a ratio for valuing ... 
Quarterly Earnings Report
A quarterly earnings report is a quarterly filing made by public ... 
Earnings Estimate
An earnings estimate is an analyst's estimate for a company's ... 
Earning Potential
Earning potential refers to the possible earnings per share gains ... 
Accounting Ratio
Accounting ratios, also known as financial ratios, are used to ...

Investing
Are stocks with low P/E ratios always better?
Is a stock with a lower P/E ratio always a better investment than a stock with a higher one? The short answer is no. The long answer is it depends. 
Investing
5 musthave metrics for value investors
In this article, we outline the five ratios that can help value investors find the most undervalued stocks in the market. 
Investing
Understanding The P/E Ratio
Learn what the price/earnings ratio really means and how you should use it to value companies. 
Investing
6 Basic Financial Ratios And What They Reveal
These formulas can help you pick better stocks for your portfolio once you learn how to use them. 
Investing
Explaining Forward PricetoEarnings Ratio
The estimated P/E of a company is often used to compare current earnings to estimated future earnings. 
Investing
Differences Between Forward P/E And Trailing P/E
The most common types of price to earnings ratios are forward P/E and trailing P/E. Find out how they differ and the advantages and drawbacks of each. 
Investing
5 Stock Market Metrics Explained
Learn how to evaluate a company's performance using metrics such as ROE, EPS and P/E ratio. 
Investing
Ratio Analysis
Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ...

What are the main income statement ratios?
Learn how to calculate and interpret some of the most common and insightful financial ratios, like earnings per share, from ... Read Answer >> 
What is the formula for calculating earnings per share?
Learn how to calculate earnings per share and why it's an important gauge in determining a stock’s value and a company's ... Read Answer >> 
How can the pricetoearnings (P/E) ratio mislead investors?
A low P/E ratio doesn't automatically mean a stock is undervalued, just like a high P/E ratio doesn't necessarily mean it ... Read Answer >>