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Earning asset |
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Earning assetAn asset that generates income, e.g., income from rental property.Earning assetAny asset which produces income.Similar MatchesLearning curveLearning curveA relationship representing either average cost or average product as a function of the accumulated output produced. Usually reflecting learning by doing, the learning curve shows cost falling, or average product rising. Taxable earningsTaxable earningsThe amount of an individual's annual income on which tax is payable defined as:Taxable earnings = Income - Reliefs - AllowancesThe main reliefs are pension contributions and donations to charity. The main allowances are the 'personal allowance' which every individual has (£4,615 for people under 65 in 2003-2004) and the Married Couples Allowance for couples where one spouse is 65 or over.So someone with Income of £20,000 who has made pension contributions in the year of £1,000 will have Total Income of £19,000, and his Taxable Income will be £19,000 less a personal allowance of £4,615 = £14,385.The amount of tax he has to pay will be determined by the tax bands in operation in the year in question. For 2003-2004, the bands are:£1-£1,960: tax rate is 10% (starting rate) - tax on band is £196£1,961-£30,500: tax rate is 22% (basic rate) - tax on band is £6,278.58Over £30,500: tax rate is 40% (higher rate) Earnings per shareEarnings per shareEarning per Share (EPS) = Earnings / Number of Shares in IssueEPS is a key ratio used in share valuations. It shows how much of the company's profits, after tax, each shareholder owns.Example: Goodco makes a post-tax profit of £1.2 million. There are 20 million shares in issue. EPS = £0.6What starts out as an easy calculation gets complicated because the rules on what constitute earnings are fuzzy, especially when it comes to 'extraordinary' items:When an industrial manufacturer sells a large parcel of land to a developer should that profit be treated the same as the profits from its mainstream activities?If its profits one year are wiped out by an uninsurable natural disaster at its plant, should that event be regarded as just a normal cost of doing business?Until recently companies had discretion about how they treated one-offs. They could call an unusual profit 'exceptional' and include it in their EPS, and call an unusual loss 'extraordinary' and exclude it from EPS. This made it very difficult for investors to gauge the true progress of the business.Various Financial Reporting Standards (FRS) have tried to regularise treatment of one-offs, but if anything have made analysis harder. Large companies now report EPS in different ways, and the challenge for investors is knowing what basis has been used. When newspapers report EPS they use 'adjusted' EPS (also known as 'headline earnings') which strips out all profits/losses attributable to non-core activities. Retained earningsRetained earningsAccounting earnings that are retained by the firm for reinvestment in its operations; earnings that are not paid out as dividends. Band earningsBand earningsPay between the lower earnings limit and upper earnings limit which is used to determine National Insurance Contributions. Further Suggestionsnet relevant earningsEarnings before interest, taxes, and depreciation (EBITD) Earnings before taxes (EBT) Earnings response coefficient Earnings price ratio Earnings before interest and, taxes (EBIT) earnings cap State Earnings Related Pension Scheme Earnings momentum retained earnings Earnings Pretax earnings or profits Distance learning Fully diluted earnings per shares adjusted earnings price earnings ratio (P/E ratio) Earnings yield upper earnings level Earnings before interest, taxes, depreciation, and amortization (EBITDA) Accounting earnings price earnings growth factor earnings normalised earnings earnings factor earnings yield |
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