Hi community,
I’m a bit confused about the terms “earnings,” “profit,” and “revenue” in the context of business, especially after reading some financial news. Can someone help break it down for me in simple terms?
From what I understand, revenue is the total money a company makes, profit is what’s left after expenses, and earnings seem to be used interchangeably with both. But I’m not entirely sure.
Here’s a snippet from a news article that adds to my confusion:
“JPMorgan Chase reported a 15% annual drop in Q4 earnings – largely due to a $2.9 billion FDIC rescue fee – but closed out its most profitable year on record.”
If earnings include profit, how can there be a drop in earnings but still have the most profitable year?
Also in what situations is earnings used as profit and in what context does earnings mean revenue?
I appreciate any help in sorting out this confusion. Thanks in advance!
In: Other
It’s indeed pretty complicated in the case of financial businesses since to normal rational logic the idea of making money just by moving it around is… questionable. However, In this case “Earnings” can be thought of as the money brought in through the primary business of return on investment. “Revenue” is the money the company itself made, including the earnings on investments the corporation itself holds, fees paid by its customers and etc while “Profit” means the net positive value. So in this case, since they had to pay off the FDIC for “rescuing” them that fee came “off the top” and cut into their fundamental earnings – but because the “rescue” altered the market in a way that benefitted them, they still came out ahead on the bottom line.
Make of this what you will…
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