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Explanation of Net Earnings
Also called Net Income, Net Profit, or informally The Bottom Line, Net Earnings is listed on the Income Statement. This is the company’s profit after all expenses are subtracted from the company’s Net Sales.
Importance of Net Earnings
Since the Net Earnings is what the company is able to keep for itself after all the expenses are paid, this is a value that always needs to be watched closely. A consistently decreasing Net Earnings is a sign the company is having an increasingly hard time doing business profitably. If the Net Earnings increased or decreased sharply, you may have to investigate as to what cause this change.
Often acquisitions or one-time charges are to blame for a radically changing Net Earnings. In extreme cases, the Net Earnings may even be negative, meaning the company is losing money while doing business. Net Earnings is important to the calculation of key performance ratios like Net Profit Margin, Cash Return on Assets, and Return on Equity.