The Earnings Statement

The earnings statement, which is at times called the income statement or profit-and-loss statement, shows the amount of money a company made or lost during the year from the sale of products or services, and the expenses the company incurred for operating costs, wages, etc. The difference between how much was taken in and how much was spent is the net earnings, or profit, of the company. This money is used to re-invest in the company and to pay dividends to shareholders.

The earnings statement is divided into four main sections: the operating section, the non-operating section, the creditors' section, and the owners^’ section.

The operating section lists the income from the sale of the company's goods or services, minus the cost of sales (labor, energy, etc.) This gives the gross operating profit.

The net operating profit is added to the non-operating section, non-operating income, such as interest and dividends from company investments. To this is added "extraordinary ítems", which are any unusual and significant additions to income or losses (the one-time sale of a large asset, for example). The sum of these represents the company's remaining income from all sources.

Payments to creditors are listed in the section of the creditors. These usually take the form of fixed interest charges on bank loans and interest charges to other debt-holders who have lent money to the company. These payments are deducted from the income of the company.

Lastly, we have the owners' section, which shows the net earnings of a company or deficit. The net earnings are shifted to the retained earnings statement, which shows the total annual earnings retained after payment of all expenses and dividends.

The Retained Earning Statement
This part of the annual report shows the amount of earnings which have been mantained in the business, either as cash or it has been reinvested in new assets. To put it in another way, it reveals the excess of net earnings that have been accumulated by a company year-by-year, over and above dividends paid out to shareholders.