Headline earnings of a company can be defined as the earnings that are solely based on operational and capital investment activities of a business. All the other incomes such as income incurred due to staff reductions, assets sale and accounting write downs is not included in the headline income.
Calculating Headline Earnings
In order to calculate headline income we first calculate the revenues that don’t come from the core business activities of the company. For example the revenues may be:-
Income Statement of a Company XYZ
|Sales of non-operating assets
In order to calculate headline earnings first of all the revenues from the sales are considered and the operating expenses are subtracted from those revenues. After this the capital expenditure is also subtracted from this figure. One thing must be noted that the income statement at this point don’t include the earnings occurred from the non-operating assets of the business as these assets are not related to the core business activities of the company.
The method of headline earnings accounts for the revenue generated from the day to day activities of the business. These are in actual the ongoing operations and investments that result in an increase of the bottom line of the company.
The basic advantage of the calculating headline earnings is that it helps the financial analyst to find out a clear picture of the company of having ability to generate revenue from day to day activities of the business. The core business activities don’t include revenue generated from the non-recurring activities such as cost cutting and sales of assets of the company.
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