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The Essential P/E: Understanding the stock market through the price-earnings ratio by Keith Anderson

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Chapter 2. Earnings

Before we can cover the P/E itself, we should first define its more complicated component: earnings. This chapter covers the basics of the different ways in which earnings and then earnings per share (EPS) can be defined. I move downwards through the profit and loss account and discuss the different figures as more and more costs are deducted from profits. The discussion is purposely kept general here; for a practical example, see the later chapter on Haynes. I do not intend to give a detailed explanation of company accounts, as many other books do this; I cover only the components of the earnings calculation.

From sales to operating profit

The basics need little explanation.

A company produces goods or services and ...

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