Use earnings information to make an investment decision

Your investment goals determines how you use information about company earnings. If you are an income investor, interested in earning immediate income from your investments, you probably want to invest in a company that is paying dividends.

If you have a long-term investment strategy, dividends may not be as important to you. The "financials" indicate whether a company is oriented for income, growth, or a bit of both. By comparing the financials for different companies in the same industry, you can find characteristics best suited to your investment goals.

A convenient way to compare companies is through Earnings per share (EPS). EPS represents the net profit divided by the number of outstanding shares of stock.When you compare the EPS of different companies, be sure to consider the following:

1 Companies with higher earnings are stronger than companies with lower earnings.
2 Companies that reinvest their earnings may pay low or no dividends but may be poised for growth.
3 Companies with lower earnings, and higher research and development costs, may be on the brink of either a breakthrough or a disaster, making them a risky proposition.4 Companies with higher earnings, lower costs and lower shareholder equity, might go in for a merger.