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

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

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

So a plus b have to be equal to 50.

Profitable.

But when you lower the Price to Earnings you are increasing the Earnings to Price.

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.

Maybe Abby made 50 and Ben earned 0.

And we can eyeball it right here.

Because when someone says earnings, are those the earnings last year?

But here you see it means very, very different things.

Company A made 1 per share. 1 of EPS.

And you might wonder, where does that come from?

Everything on this line would be a valid combination of

Minus 500,000.

So let's look at them over the course of one year.

So notice.

Invest financial assistance, but also management assistance.

Our interests clash with theirs.

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

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.

Let's compare EBlT to operating profit.

The reason why you are willing to pay a higher Price to

And what's left over for the equity?

So let me switch colors just to ease the monotony.

And they were male and female 18 30 and they were casual fans.

I'm not a charity commissioner.

But the reason I wanted do to Earnings to Price is because it connects it back to things like yield and interest.

Go ahead, eat.

What does that tell us?

It's just 10 because one, this is a nice round number.

It's the same plot.

When? I said it's time to monetise the site.

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

And if we see how they graphed things here, on the vertical axis, what we normally associate with the y axis, they graphed Abby's earnings.

The earnings I just said, this is actually what happened to the company.

So now we add an interesting line.

Are you with me?

And the first one is that this whole idea about revenue stream, Steve, I get it.

And we add back the interest, at least in this example, we get to an operating profit number.

So that's a nice thing to keep in the back of your mind, this return on asset concept, and it's very closely tied to operating profits and the actual assets of a firm.

And so I'm left with net income of 350,000.

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

Abby earned 10 more than Ben.