We are assuming a very simple world, were the is no taxes, we have no debt, we have no intrest or things

But again, fun is not enough.

So you've probably heard not only the term earnings, you've probably also heard the term earnings per share.

Then the companies or those factories or whatever you want to think of them,

And when people talk about earnings of a company, this is what they're talking about.

And you'll hear these numbers, gross and operating profit and net profit and pretax profit, and it's very hard to understand that these are actually very, very different things, because they all have the word profit, and what does gross and operating and all that mean?

This is what the owners of the company get before they pay the government.

(Laughter) But I know it's the bottom line, or one's perception of it, that motivates people in the end.

And at least it'll give you a sense of how revenues, gross profit, operating profit, pre tax income and net income really are different.

And let's say, assume if I inherited this million dollars, I didn't finance it.

They buy more of your service and they tell more of their friends, which leads to more profit.

But very, very few people or organizations know why they do what they do.

So what they do is they just take your earnings number and you divide by the number of shares.

So then you're having, you have your net income, your net income during the period.

The taxes will be 153,000.

And then if you subtract your costs from your revenue, or if you just add these two numbers, because this one is negative, you have your gross profit.

But, of course, that's not the money that we get to take home, because we have to pay this interest.

So EBlT, I kind of view that it goes backwards.

But just so you know what EBlT is, EBlT is just Earnings

So my operating profit here is 1 million.

In return on equity, the numerator is the net income that we got, so it's 350,000.

Company A made 1 per share. 1 of EPS.

It's good for everybody.

What's in it for the institution?

They have no interest expense, because that's not the point of this video.

So in month 4, we can actually put it in our income statement at 200, and then we had 100 of expenses, so that we have this 100 right over here.

This is really important to pay attention to, because so many people say, oh, a company made this much.

But in general if you take EBlT and you take out the non operating income, you get back to operating profits.

This is 350,000 of net income.

This was interest. This was non op income.

This guy makes what is this?

And then I was left with 1 million.

Why isn't it on every poster across the third world?

And we had no expenses in that month.

Maybe it was 4 , or 3.5 .

We know how much it takes to build our product.

So, let's see, you have to do 1.85.

And then I'll do a more philosophical video on why these things even exist, and why they're useful, and why people may benefit or may not benefit from these things.

So that's what I'm paying for, arguably.

Let's say this is what we assume is how many cupcakes we sell.

And then the very first definition I gave you was operating profit over assets.

In your country, there might be the equivalent of government fund.

Minus 500,000.

So it will benefit, because you are discounting some of the cash payments.

And now we're ready to figure out how much money did the operations of this business make?