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Headline Earnings is a method of reporting a company’s Income on operational, trading and other investment activities achieved in the previous fiscal period. Remember that the headline earning figure will not include the profit or losses that comes with sales or termination of discontinued operations, fixed assets or related businesses.
It is a measurement tool that isolates core operational profitability. It shows a company’s core business profitability by excluding asset sales, termination of discontinued operations, etc.
By doing this, one can view a good picture of how a company operates on a daily Basis. Some companies conduct the reporting of headline earnings based on earning per share basis (EPS) in addition to the EPS figures that are taken into account. Headline earnings are non-GAAP and should be reconciled with net income when displayed on shareholder reports.
The headline Earnings Per Share measurement were first started by the U.K. Institute of Investment Management and Research (IIMR). They developed a method to analyse the P&L statement in a better manner that would paint a picture of the company in a better way. This picture would represent a firm’s operations during ‘business as usual’ which would be clouded by a write-off.
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The quality of earnings by a company is important so that the investors can make an informed decision. The investors will need to consider the validity of headline earnings and exclusions on a case-to-case basis.
Research says that headline figures that are more likely to exclude losses than gains.