Headline Earnings
What are aggregate revenues?
Overall profits refer to a method of reporting corporate profits is based entirely on operating, trading and capital investment activities carried out during the previous period. Excluded from the overall profit figure are profits or losses associated with the sale or termination of discontinued operations, fixed assets or related businesses, or any permanent write-down or write-off of their values.
Key points to remember
- Overall revenue only indicates a company’s income from operations, trade, and investments.
- The overall profit therefore excludes certain one-off or exceptional items such as write-offs.
- Analysts look to overall earnings as a basis for determining how well a company is operating at its usual capacity.
Understanding Overall Revenue
Overall profit provides a rigorous measurement tool for isolating core operating profitability. Excluding asset sales, discontinued operations, restructuring charges and write-downs, comprehensive income shows the profitability of a company’s core business. Since overall profits make these exclusions, it gives a better picture of how the business operates on an ongoing basis, where one-time charges or special items that are unlikely to recur can give an unfair impression of true operations. . At the same time, these items are certainly important to analysts, especially if they end up repeating themselves or having a material impact on future prospects.
Some companies report aggregate earnings per share (EPS) in addition to the required EPS figures that take other things into account. Because it does not take these items into account, comprehensive income is considered non-GAAP and must be reconciled to net income if presented in reports to shareholders, in accordance with SEC regulations.
This basis for measuring overall earnings per share was established in 1993 by the former Institute of Investment Management and Research (IIMR) in the United Kingdom.The IIMR developed this method as a way to better analyze a company’s income statement with a picture that would better represent a company’s operations during “business as usual”, which might be obscured by a charge or a single radiation.
Criticism of overall benefits
The quality of a company’s earnings is important, so investors should consider the validity of the overall earnings and the exclusions it makes on a case-by-case basis to avoid being misled or misinformed. For example, research has shown that headline numbers are more likely to rule out losses than gains. GAAP (Generally Accepted Accounting Principles) earnings now significantly track non-GAAP earnings as companies become accustomed to including “one-time” adjustments or charges, which become problematic when they start to occur each quarter.
For example, Merck (MRK) turned a GAAP loss of $0.02 per share into an “adjusted” overall EPS of $1.11 per share in the third quarter of 2017, a difference of 5,650%.