Module 2 · Market Mechanics · Lesson 3
Earnings
How profit, cash flow, and per-share results fit together.
What are company earnings?
Earnings usually means net income or loss for a stated period: revenue less reported expenses, which differs from cash received. Earnings per share expresses profit attributable to common shareholders on a per-share basis. Read earnings alongside revenue, cash flow, debt, and the financial-statement notes.
How do revenue and net income differ?
Revenue is the amount a company reports from selling goods or services. Expenses, interest, and taxes reduce the amount left as net income; some companies report a net loss. The Apple example below compares actual reported results for two fiscal years.
What is earnings per share?
EPS shows earnings attributable to common shareholders for each weighted average share. A simplified calculation is profit available to common shareholders divided by weighted average common shares. Company reports may show basic and diluted EPS; diluted EPS reflects potential additional shares. Compare the same EPS measure and reporting periods, and check whether changes came from profit, share count, or both.
Why compare earnings with cash flow?
Net income includes accounting items that may not equal cash received or paid in the period. The cash flow statement starts with net income and adjusts for noncash items and working capital changes to show cash from operating activities. A profitable company can still face a cash shortage. Read the income statement, balance sheet, cash flow statement, and notes together.
What does a P/E ratio tell you?
The price-to-earnings ratio is share price divided by EPS for a stated period. The ratio shows the market price relative to reported earnings, not whether a stock is cheap or will rise. It can be hard to interpret when earnings are unusually high, unusually low, or negative.
Apple: compare diluted earnings per share across two fiscal years
Fiscal years ended September 27, 2025 and September 28, 2024.
| Measure | FY2024 | FY2025 |
|---|---|---|
| Revenue | 391,035 | 416,161 |
| Net income | 93,736 | 112,010 |
| Diluted EPS | $6.08 | $7.46 |
- Use the annual diluted EPS columns, not the quarter columns or basic EPS.
- Calculate the dollar change: $7.46 − $6.08 = $1.38 per share.
- Divide by the earlier EPS: $1.38 ÷ $6.08 × 100 = 22.7% (rounded).
This is reported GAAP EPS growth, not the adjusted quarterly growth highlighted in the press release. Apple identifies a one-time tax charge in the 2024 comparison. Read that reconciliation and the share-count changes before attributing all EPS growth to stronger operations.
Sources: Apple FY2025 earnings release: financial tables and tax reconciliation, Apple FY2025 Form 10-K, statement of operations, page 29
Assuming profit guarantees a rising share price
A share price also reflects expectations, valuation, future prospects, interest rates, and risk. Higher reported earnings do not force a higher price. One ratio or one quarter cannot explain the whole business.
Three quick questions and a why
1. Which annual diluted EPS pair belongs in the worked comparison?
A. FY2024 $6.08 and FY2025 $7.46. B. Two quarterly figures. C. Revenue divided by the share price.
Show answer and feedback
A. Compare the same EPS measure across comparable annual periods.
2. Which statement is accurate?
A. Net income and operating cash flow always match. B. Net income is an accounting result; cash flow adds another view. C. Revenue equals profit.
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B. Accounting entries and the timing of cash receipts or payments can differ.
3. How do you calculate the percentage EPS increase?
A. Divide the earlier EPS by revenue. B. Divide the EPS change by the earlier EPS and multiply by 100. C. Add the two EPS figures.
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B. $1.38 ÷ $6.08 × 100 is about 22.7%. Use the earlier value as the comparison base.
Why question: Why might rising revenue alongside falling net income call for more research?
Show a sample explanation
Expenses may have increased faster than sales. The statements and management discussion can help identify the cause.
Read the same three lines in an annual report
Open the SEC EDGAR page prefilled for Apple and select its latest Form 10-K. Find revenue, net income, and net cash from operating activities for the same fiscal year. Record those figures and explain one reason they differ. This is a filing-reading exercise, not a stock recommendation.
Where can you verify the definitions?
- SEC: Beginners’ Guide to Financial Statements
- SEC Investor.gov: How to Read a 10-K
- SEC Investor.gov: How to Read a 10-K or 10-Q
- FINRA: Evaluating Stocks
End of Lesson
Module 2 · Lesson 3 · Continue to Types of Industries.
AI responses are for educational purposes. Always verify with official course materials.
This lesson teaches a concept. It is general education, not advice about your money. Before you act on anything you learn here, speak to someone licensed.
AI responses are for educational purposes. Always verify with official course materials.
This lesson teaches a concept. It is general education, not advice about your money. Before you act on anything you learn here, speak to someone licensed.
This lesson teaches a concept. It is general education, not advice about your money. Before you act on anything you learn here, speak to someone licensed.
