Legal Definitions - core earnings

Core earnings represent the profits a company generates from its regular, ongoing business activities. This financial measure focuses on the income and expenses directly tied to a company's primary operations, providing a clearer and more sustainable picture of its profitability. It typically excludes one-time events, unusual gains or losses, or income and expenses from non-operational activities that are not expected to recur.

• Example 1: A Manufacturing Company

  Imagine "Global Gadgets Inc.," a company that designs and manufactures consumer electronics. Their core earnings would include revenue from selling smartphones and laptops, minus the costs of materials, factory labor, research and development for new products, marketing campaigns, and administrative salaries for their operational staff. However, if Global Gadgets Inc. sold off an old, unused factory building for a significant profit, that one-time gain would typically be excluded from their core earnings. This is because selling property is not part of their regular business of making and selling electronics.

  This example illustrates core earnings by focusing on the recurring income and expenses from Global Gadgets Inc.'s primary business of manufacturing and selling electronics, while excluding a non-recurring, non-operational event like the sale of an asset.

• Example 2: A Software as a Service (SaaS) Provider

  "CloudSolutions Corp." offers subscription-based project management software to businesses. Their core earnings would encompass the recurring revenue from monthly and annual subscriptions, minus the costs associated with maintaining their servers, paying their software developers and customer support teams, and marketing their software to new clients. If CloudSolutions Corp. received a large, one-time legal settlement payment from a patent infringement lawsuit, this payment would generally be excluded from their core earnings. While it's a gain, it's not part of their regular business of developing and selling software subscriptions.

  This example demonstrates core earnings by highlighting the consistent revenue and expenses from CloudSolutions Corp.'s primary software business, separate from an extraordinary and non-recurring legal event.

• Example 3: A Retail Grocery Chain

  "FreshFoods Market" operates a chain of grocery stores across the country. Their core earnings would reflect the revenue generated from selling groceries and other household items, minus the cost of purchasing inventory, wages for store employees, rent for store locations, utility bills, and advertising for weekly specials. If FreshFoods Market decided to sell off its corporate headquarters building and lease a smaller office space, any profit or loss from that real estate transaction would typically be excluded from their core earnings. Selling buildings is not their primary business; selling groceries is.

  This example shows core earnings by focusing on the profitability derived from FreshFoods Market's day-to-day retail operations, distinguishing it from a significant, non-recurring asset sale.