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.


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.