If you’ve ever tuned into financial news or read a business magazine, you’ve likely heard the term “corporate earnings.” While it’s certainly a popular topic of conversation and debate in the world of investing, many people may not fully understand corporate earnings and what they mean for investors and the economy as a whole.
Corporate earnings are the amount of money that a publicly-traded company makes during a given period—typically a quarter or fiscal year. They are determined by a company’s revenue minus its expenses. The term “earnings” is sometimes used interchangeably with the terms profit and net income, though net income is a more narrow metric that excludes interest and taxes and is typically found in the cash flow statement of the balance sheet.
Investors watch earnings closely because they provide a snapshot of the company’s profitability and are often used as a proxy for the overall health of the economy. The BEA releases an aggregate report on quarterly corporate earnings, and those results are used by market participants, Congress, policymakers, and business and community leaders to make decisions that affect the American economy.