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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Headline Earnings

What it is:

Headline earnings are a measurement of a company's earnings based solely on operational and capital investment activities. It specifically excludes any income that may relate to staff reductions, sales of assets, or accounting write-downs.

How it works (Example):

To measure headline earnings, we begin by backing out any revenue that did not come from the company's core business. To illustrate:

Income Statement for Company XYZ

Sales Revenue                              $500

Operating Expenses                    ($300)

Sale of Non-Operating Assets       $400

Capital Expenditures                    ($100)

To calculate headline earnings, we start with revenue from sales and subtract operating expenses and capital expenditures ($500 - $300 - $100 = $100). Note that we did not include the income from the sale of non-operating assets because those assets don't have anything to do with the core business the company is in. 

Why it Matters:

The headline earnings method accounts for revenue generated through business-as-usual activities, that is, ongoing operations or investment activities that increase a company's bottom line. This method helps financial analysts obtain a clearer picture of a company’s ability to generate revenues from its core business activities rather than from non-recurring events such as cost-cutting, sales of assets or accounting write-downs.

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