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Taxable earnings |
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Taxable 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)Similar MatchesEarningsEarningsThe annual profits of a company after deduction of tax, dividends to preference shareholders and bondholders. Earnings are usually expressed on a per-share basis (e.g. 7p), and the earnings per share (EPS) figure is calculated by dividing total earnings by the average number of shares in issue for the relevant accounting period.E.g. earnings of £2m, with 10m shares in issue would give an EPS of 20pYou may see earnings used in several ways:Reported earnings: the figure in the company's accountsUnderlying earnings: the figure derived from reported earnings by excluding any one-off items (e.g. profit from the sale of land which is not part of the company's normal business)Diluted earnings: earnings after adjustment has been made for shares that may be issued in the future if holders of options, warrants and convertibles choose to exercise their rights. Price earnings ratio (P/E ratio)Price earnings ratio (P/E ratio)P/E = current share price of a company divided by its earnings per shareA company with a share price of 100p and earnings per share (EPS) of 5p has a P/E ratio of 100/5 = 20.A company's P/E (also known as its multiple) shows how high its shares are priced in relation to its historical earnings. Although mathematically, it relates share price to past performance, the reality is that P/Es are more about forward expectations than the past. A high P/E indicates that the City expects the company's earnings to grow fast in the future.P/E 're-ratings' by the City can have a dramatic effect on share price. If a company regarded as a growth stock announces sharply reduced trading figures, fund managers may revise their view of the company, and decide that it doesn't justify a growth stock P/E of 20, and can only justify a more normal P/E of, say 12. If earnings were 10p share, that re-rating would suggest a change in share price from 200p to 120p.Equally, if a company announces some major technical breakthrough, or a major contract, the City may decide that its future earnings potential justifies a growth P/E, and re-rate it upwards from 12 to 20 (or equivalent figures). In which case the share price will leap.There is nothing formal about this re-rating procedure. It is simply buyers in the market pushing up the price to reflect a new perception of a company. But P/Es do tend to be comparative, in that companies in the same sector with similar prospects would normally have similar P/Es. If they don't, there is invariably a reason accounting for the difference. Band earningsBand earningsPay between the lower earnings limit and upper earnings limit which is used to determine National Insurance Contributions. State Earnings Related Pension SchemeState Earnings Related Pension SchemeA government scheme introduced in April 1978 which enables employees (but not the self-employed) to top up the basic pension they receive on retirement with additional pension payments based on their earnings.Employees make payments to SERPS by way of Class 1 National Insurance (NI) contributions. They can 'contract out' of SERPS and pay Class 1 contributions via a rebate which may be invested in an occupational pension or a personal pension plan.SERPS was replaced in April 2002 with the 'State Second Pension' which is designed to give more to the lower paid and middle earners, carers and the long-term disabled with broken work records. Whereas with SERPS, the more you earn, the higher your pension, S2P operate a flat rate which means that high earners will be better off opting for private pension schemes. Earnings price ratioEarnings price ratioSee: Earnings yield Further Suggestionsnormalised earningsearnings factor adjusted earnings Earnings before taxes (EBT) Accounting earnings Earnings before interest and, taxes (EBIT) Earnings before interest, taxes, and depreciation (EBITD) Earnings before interest after taxes (EBIAT) Earnings retention ratio Earnings momentum Normalized earnings earnings cap Primary earnings per (common) share Earnings yield Pretax earnings or profits upper earnings level Earnings Quality of earnings lower earnings limit earnings per share price earnings growth factor earnings yield Earnings before interest, taxes, depreciation, and amortization (EBITDA) Earnings response coefficient retained earnings |
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