PDSnet Glossary

Term

Categories

Introductory Technical Fundamental Economics Opinion Sectors International Regulatory Other Markets

Versions

Name	synonyms = 1, variations = 2, abbreviations = 3

Publish: (0 = no, 1 = yes)

Definition

The earnings of a company are its profits. They are calculated by deducting the expenses of a period from the incomes of the same period. Earnings in South Africa are subject to taxation at 27%. Sometimes a company will take advantage of various initial and investment allowances in the Income Tax Act to reduce this for a period, but in general if you see a company which is paying less than 27% in tax they will almost certainly revert to that rate in future years. The earnings of a company are divided by its issued shares to arrive at the company's earnings per share (EPS) and that, in turn, is expressed as a percentage of the current share price to give the earnings yield (EY) and is divided into the current share price to give the share's price:earnings (P:E) multiple. The ideal investment is one which is growing earnings at a steady rate over a long period of time. Such companies are "highly rated". The more volatile a company's earnings are the lower the share's rating will be and the higher its EY. To assess the value of a share in terms of its earnings we recommend you use the price:earnings growth (PEG) ratio. This will show is a share is over- or under-priced in relation to its history of profits.

Edit Glossary Term