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What are Accounting Earnings?

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  • Written By: Geri Terzo
  • Edited By: A. Joseph
  • Last Modified Date: 06 November 2016
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Accounting earnings are a measure of a company's profitability. Also referred to as net income, accounting earnings are reported on a company's income statement filed with the financial regulatory body in a region. These documents typically are filed quarterly and yearly. Key items on a company's earnings statement include accounting earnings per share, revenue and projections for the upcoming quarter or year. Investors and analysts alike rely on this data as a reflection of a company's financial health.

Accounting earnings on a company's income statement are also referred to as bottom line growth, and they represent the sum that was earned after costs and expenses. Top line growth is a term used to describe revenue or sales growth over a period. Accounting earnings are essentially total revenues minus the cost to produce goods or services. Earnings are described either as net income or on an accounting per-share basis.

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The per-share amount is used to describe the value that shareholders would receive if the company to decided to distribute all of its profits to them. Typically, a company uses profits to reinvest in the business and might pay out a portion of those earnings to shareholders in the form of a dividend. The per-share figure is calculated by dividing the total net income earned by the number of outstanding shares in the stock market. If a company has not generated profits in a quarter or a one-year period, a loss is subsequently reported, and earnings are described as a net loss or loss per share.

A company's accounting earnings represent real financial performance over a period of time versus estimated earnings. Typically, a company's management team in addition to financial analysts will issue projections for what quarterly or yearly profits and sales will be. Estimates for forthcoming earnings periods are issued either in conjunction with current accounting earnings or weeks prior to an income statement being filed. This is an important gauge of actual earnings because it sets the stage for what type of profits investors can expect. A company's stock often will rise or fall based on earnings estimates and tend to react yet again once accounting earnings are reported.

Reporting standards for earnings vary depending on the region in which a company is domiciled. The U.S. financial system uses Generally Accepted Accounting Principles (GAAP) as the standard. Under these principles, a company must also report retained earnings, which are profits from accounting earnings that are retained once dividend payments have been distributed to shareholders. Retained earnings are displayed on a document that is filed alongside or within an income statement.

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