Accounting Earnings

Accounting Earnings can be defined as the total amount that is earned by a business entity or a company in the given accounting period that may last for a year or a quarter as reported by the accounting standards such as GAAP. The accounting earnings are the tool that is used to measure the profitability of the company in that given accounting period. While investing in a company most of the investors and third parties go for evaluating the accounting earnings of the company to find out the financial stability and the profitability of the company. However it is advisable for the investor not to just look for the quantity of the accounting earnings but also analyze the quality of the accounting earnings of the company. The quality of earnings include a number of factors such as the controllability of the earnings, the degree of repetition of the earnings and the degree up to which the earnings are bankable.

Corporate and business entities have to declare their accounting earnings publically to attract investors and credit parties. The reaction of the investors and credit parties towards the accounting earnings of the company results in the rise and fall of the shares of that company within the market. The managers and decision makers of the companies arrange an earning call with the investors to provide a briefing on the accounting earnings of the company for that quarter. These accounting earnings can be calculated in a specific manner as declared by GAAP. Some other principles can also be used to create accounting earnings in such a way that support management long term goals and objectives.

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