DEFINITION of 'S&P Core Earnings'

The calculation of S&P core earnings, as defined by Standard and Poor's (S&P) begins with reported net income calculated in accordance with Generally Accepted Accounting Principles (GAAP). Reported net income is adjusted to include employee stock option grant expense, restructuring charges from ongoing operations, write-downs of depreciable or amortizable operating assets, pension costs, purchased research and development expenses, merger and acquisition related expenses and unrealized gains or losses from hedging activities.

Goodwill impairment charges, gains or losses from asset sales, pension gains, reversal of prior year charges and provisions and litigation or insurance settlements and proceeds are excluded from the calculation. For example, included in core earnings for IBM would be revenue generated by the sale of computer software and hardware, but income generated by investment gains in the firm’s pension plan would not be included.

BREAKING DOWN 'S&P Core Earnings'

The S&P core earnings measure is meant to capture earnings due to ongoing core business operations. Because it excludes extraneous or one-time events and disregards the effect of capital market performance on income, it is typically viewed as an indicator of a company’s pure earnings performance.

In the early 2000s, the bankruptcies of notable organizations, such as Enron and WorldCom shone a light on common accounting obscurities and outright scandals. There was little uniformity across companies in their approaches to the calculation and reporting of earnings, leading to opaque disclosures and difficult cross-industry comparisons. In response to this plethora of disparate methods for calculating earnings among publicly traded companies, Standard and Poor’s, a leading provider of index data and a database of corporate financial data, sought to develop a succinct, uniform measure that could be applied across companies. The firm first issued a research note on earnings calculations that included a suggested approach to calculating operating earnings in the Fall of 2001. This initial research was distributed to financial practitioners, securities and accounting analysts, portfolio managers, corporate executives, academic researchers and other investment professionals, and sparked a healthy debate on the topic of reported earnings.

Ultimately, this debate led to a collaborative effort between Standard and Poor’s and prominent industry leaders to create a uniform definition of corporate earnings. S&P core earnings provide for transparency, consistency and a more stringent definition of a company’s earnings, and therefore provide an improved platform for analysts and investors to evaluate and compare those companies that report core earnings.

RELATED TERMS
  1. Core Earnings

    Core earnings are derived from a company's main or principal ...
  2. Core Inflation

    Core inflation is the change in prices of goods and services ...
  3. Core Plus

    Core plus is an investment management style that permits managers ...
  4. Operating Profit

    Operating profit is the profit from a firm's core business operations, ...
  5. Earnings

    Earnings typically refer to after-tax net income or a company's ...
  6. Core Competencies

    Core competencies are the resources and/or strategic advantages ...
Related Articles
  1. Investing

    The Top 5 Large-Cap Core Mutual Funds for 2016

    Learn the benefits and risks of large-cap core investments, and discover the best large-cap core mutual funds to consider for 2016.
  2. Retirement

    11 Social Security Calculators Worth Your Time

    The safest Social Security calculators to use when figuring benefits are on the official website. The best are the ones that access your actual record.
  3. Investing

    Improving Earnings Will Push Stock Prices Higher

    Despite the rough week for stocks, earnings growth has improved since the beginning of the year.
  4. Retirement

    The 3 Best Social Security Calculators For 2016

    Find out how to analyze your Social Security benefits under different retirement scenarios using multifunctional online Social Security calculators.
  5. Investing

    Why GAAP and Non-GAAP Are More Divergent Since 2009

    Examine the divergence of GAAP and adjusted earnings in the years leading up to 2015 to identify the factors causing the gap to widen.
  6. Insights

    American Airlines Uniform Manufacturer Speaks Out About Complaints (AAL)

    The manufacturer behind American Airlines’s new uniforms penned a letter saying that, despite complaints, its uniforms are safe to wear.
  7. Investing

    GAAP And The IFRS Standards Convergence Efforts In 3 Substantial Areas

    Understand the specific steps that have been taken in hopes of converging the GAAP and the IFRS accounting standards, despite the philosophically and culturally based methodological differences ...
  8. Insurance

    4 Mortgage Calculators that Include Taxes and Insurance

    Discover four websites that offer mortgage calculators that include property taxes and homeowners insurance cost along with other financial features.
  9. Investing

    Understanding the Income Statement

    The best way to analyze a company - and figure out if it's worth investing in - is to know how to dissect its income statement. Here's how to do it.
  10. Investing

    Assess Shareholder Wealth With EPS

    Find out if management is doing its job of creating profit for investors.
RELATED FAQS
  1. Is operating profit the same as net income?

    Understand the difference between operating profit and net income, including how each type relates to the other and how both ... Read Answer >>
  2. How do operating income and revenue differ?

    Revenue and operating income have different deductions and credits involved in their calculations and both are essential ... Read Answer >>
  3. Calculate your portfolio's investment returns

    Learn the basic principles underlying the data and calculations used to perform personal rates of return on investment portfolios. Read Answer >>
  4. Is net income the same as profit?

    Understand the difference between profit and net income, including why corporate accountants calculate profit at different ... Read Answer >>
Trading Center