Earnings are the financial benefits that companies earn from their operations, and they’re the basis for a company’s valuation. Companies disclose earnings on a quarterly and yearly basis, giving investors insight into a company’s operational health and long-term potential.

Corporate earnings are also a leading indicator of overall economic trends, and when earnings growth slows it’s usually a precursor to an upcoming economic slowdown. Therefore, analysts closely monitor leading indicators like unemployment claims, housing permits, purchasing managers’ index for manufacturing, retail sales, durable goods orders, and consumer confidence to anticipate changes in corporate earnings.

Unlike profit, which is the amount of money a company receives for its products or services, earnings are calculated after subtracting all costs and expenses. Many alternative terms are used to describe earnings, such as income, net income, and EBIT (earnings before interest, taxes, depreciation, and amortization).

Investors can use a variety of metrics to assess a company’s performance, including revenue trends, EPS, and forward guidance. Industry sector-specific factors may also influence which data points are most important. For example, technology sector investors may prioritize research and development spending or subscriber growth while energy sector investors may focus on production volumes and commodity prices.

However, it’s important to keep in mind that earnings can be distorted by one-time gains or losses. For instance, if a company sells a business division or writes down the value of an asset, it can artificially inflate earnings. Similarly, higher operating expenses without commensurate increases in revenue can weaken earnings trends.