Debt Dictionary

Earnings Report

Investment Dictionary -> Earnings Report

The earnings report represents a quarterly or annual formal financial report that is compiled and published by a legal entity. This document shows the earnings, expenses, and net profit of the company. The earnings report is also referred to as ‘income statement’, ‘statement of operations’ and ‘income statement’. In principle, the earnings report gives information about the transformation of revenue into the company’s net income. ?he report encompasses the equation: revenues minus incurred expenses equals the net income of the entity. Furthermore, the report aims to demonstrate whether the company has earned profits or incurred losses during the reported time period.

Earnings reports are valuable in the assessment of past and future performance as well as the entity’s capacity to draw cash flaws. In a nut shell, the earnings report is a valuable measuring instrument of the company’s profitability. However, income statements have been recent object of criticism. Opponents claim that accounting adjustments and possible subjective estimates decrease the accuracy of the earning reports. Further, some numbers, such as depreciation expenses, depend on subjective judgments about the useful life of the assets. Some components of the report, such as employee’s loyalty to the company, may be of high relevance. However, they may be excluded from the report. Finally, the accuracy of some numbers depends on the methods employed.

All these factors have led to the coinage of the term creative accounting. This euphemism stands for keeping up with the standard accounting rules in principle rather than in practice. Furthermore, several accounting scandals have triggered a growing demand for detailed standards on companies` reporting practices. The aim is to prevent the overstatement of revenues or the understatement of expenses. Moreover, investors are advised to examine the three main financial statements of the company. This will help them gain an adequate exposal to the results of the company.

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