What is the significance of earnings and profits to a corporation

In computing the earnings and profits for any period beginning after February 28, , the only depletion or depreciation deductions to be considered are those based on i cost or other basis, if the depletable or depreciable asset was acquired subsequent to February 28, , or ii adjusted cost or March 1, , value , whichever is higher, if acquired before March 1, Thus, discovery or percentage depletion under all revenue acts for mines and oil and gas wells is not to be taken into consideration in computing the earnings and profits of a corporation.

Similarly, where the basis of property in the hands of a corporation is a substituted basis, such basis, and not the fair market value of the property at the time of the acquisition by the corporation , is the basis for computing depletion and depreciation for the purpose of determining earnings and profits of the corporation.

However, in determining the earnings and profits accumulated since February 28, , the excess of a loss sustained for a year subsequent to February 28, , over the undistributed earnings and profits accumulated since February 28, , and before the year for which the loss was sustained, reduces surplus as of March 1, , to the extent of such excess.

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Net profit is calculated from the final section of an income statement. Net profit is used in the calculation of net profit margin, which gives the final portrayal of how much a company is earning per dollar of sales. The bottom line shows how much a company has earned after subtracting all of its expenses.

This measure can be referred to as net profit, net earnings, or net income. The net earnings of a company are the earnings after all expenses have been subtracted. Overall, earnings is the net value a company has achieved from operating activities for a specific reporting period. Companies also portray their net earnings by dividing it over shares outstanding when identifying the earnings per share EPS value.

The net earnings of a company theoretically reflect an accounting value for a specific period. After the net earnings are calculated, this value flows through to the balance sheet and cash flow statement.

On the balance sheet, net earnings are included as retained earnings in the equity section. Retained earnings for the balance sheet are calculated as beginning retained earnings plus net income minus dividends.

On the cash flow statement, the net earnings begin the top line of the operating activities section. The terms profit and earnings should be evaluated in context.

The bottom-line, net earnings will have a different connotation. Net earnings can also be expressed as net income or net profit. Financial Statements. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.

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