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Pretax earnings or profits |
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Pretax earnings or profitsNet income before federal income taxes are subtracted.Pretax earnings or profits Similar MatchesEarnings retention ratioEarnings retention ratioPlowback rate. Net relevant earningsNet relevant earningsA person's pensionable income (that is, income from employment) plus taxable benefits in kind, less any allowable business expenses but before deduction of personal allowances. For self employed people these are taxable profits less capital allowances or losses from previous years. 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. Earnings before taxes (EBT)Earnings before taxes (EBT)A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of income taxes. Retained earningsRetained earningsThe proportion of a company's profits after tax which are not paid out as dividends but reinvested in the company. Further SuggestionsEarnings response coefficientearnings cap taxable earnings Primary earnings per (common) share price earnings growth factor Quality of earnings Earnings price ratio earnings yield Earnings momentum Retained earnings Earnings before interest and, taxes (EBIT) Earnings before interest, taxes, and depreciation (EBITD) Earnings before interest after taxes (EBIAT) earnings factor earnings Normalized earnings adjusted earnings Earnings Earnings lower earnings limit price earnings ratio (P/E ratio) State Earnings Related Pension Scheme Earnings yield normalised earnings Fully diluted earnings per shares |
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