**Earnings** represent the company’s net profit after all expenses have been accounted for. This is the “bottom line” of the income statement, showing the ultimate profitability of the company once costs directly related to production (COGS), operational expenses (OPEX), interest, and taxes have been deducted from total revenue. **Key Points for Earnings in the CORE Framework:** 1. **Net Profit Indicator**: Earnings reflect the residual income that remains after covering all expenses, indicating the company’s true profitability. 2. **Financial Health Marker**: As the final outcome of the revenue and cost structure, earnings provide insight into the financial health and sustainability of the business. 3. **Foundation for Growth and Investment**: Positive earnings can be reinvested in the company for growth, distributed to shareholders, or held in reserve, making this metric crucial for strategic decision-making. In the CORE framework, **Earnings** are essential for assessing the company’s effectiveness in managing costs relative to revenue, highlighting both operational efficiency and profitability. **Earnings** (also known as **Net Income** or **Net Profit**) is calculated by subtracting all expenses from total revenue. This includes not only [[COGS]] and [[OPEX]] but also any additional expenses like interest and taxes. Here’s the formula: $ \text{Earnings (Net Income)} = \text{Revenue} - (\text{COGS} + \text{OPEX} + \text{Interest} + \text{Taxes}) $ **Breakdown of the Calculation:** 1. **Revenue**: Total income from sales or services. 2. **COGS (Cost of Goods Sold)**: Direct costs of producing goods or services sold. 3. **OPEX (Operating Expenses)**: Indirect costs of running the business (e.g., administrative, marketing). 4. **Interest**: Costs related to any debt financing (e.g., loan interest). 5. **Taxes**: Income tax expenses. ## Simplified Example If a company has: • **Revenue** of $1,000,000 • **COGS** of $400,000 • **OPEX** of $300,000 • **Interest** of $20,000 • **Taxes** of $50,000 The calculation would be: $ \text{Earnings} = 1,000,000 - (400,000 + 300,000 + 20,000 + 50,000) = 230,000 $ So, the **Net Income (Earnings)** would be $230,000. This represents the company’s profit after covering all its expenses.