What are Core Earnings?
Core earnings are the net income a company generates from the principle products and services it provides.
How Do Core Earnings Work?
The concept of core earnings was developed by Standard & Poor's (S&P) in order to measure the income a company generates from its daily operations. In this respect, core earnings include income generated by a company's production operations, advertising campaigns and issuance of securities. Core earnings exclude such factors as gains from a firm's portfolio and pension plan, capital gains from asset sales and any income derived from a brief project.
To illustrate, suppose Company XYZ produces watches. Company XYZ's core earnings will derive from revenue generated by the process of manufacturing the watches, XYZ's effort to advertise the watches and the sale and servicing of the securities it issued to raise money to maintain watch-making operations.
Why Do Core Earnings Matter?
Core earnings reflect income generated by what could be called "business-as-usual." Because it excludes any one-time events or market fluctuations, it can be a better indicator of a company's earnings performance across numerous accounting periods.