Daily Gains Letter

Corporate Profits

Also referred to as “corporate earnings” and “company earnings,” “corporate profits” basically refers to the amount of money a company makes in a certain period. The price/earnings multiple is still the most common tool used to value a company. The stock market values a company based on the amount of money—the earnings and profits—the company has after all expenses, including taxes, have been paid. In a stock market where stocks are traded at an average of 12-times earnings, a company making $1.00 a share per year would be valued at $12.00. All things being equal, the more money a public company makes, the higher its stock price.