Thursday, March 11, 2010

What you should know about earnings

Earnings are the life blood of a company. Without earnings, a company cannot survive. Earnings are referred to as the net earnings after tax. When you look at earnings, you must look at earnings per share (EPS) which is the net earnings divided by the number of shares issued. Many people look at total earnings without considering the paid-up capital and the par value of the share. This is not the correct way.
Another thing you should pay attention is whether there is any one-time gain , like the selling of an asset for example, that is included in the net earnings. Because such earning is unlikely to happen in the following year, the EPS should be adjusted if such earning is there.
Earnings and dividends are the most studied figures in an analysis as they are the ultimate determinants of the share price. If the earnings beat the estimates of analysts by a significant margin, the share price will normally surge.