Earnings Variability

earnings variability

Fluctuations in a corporation's net income or earnings per share during a given period. Past earnings variability is generally considered undesirable because it makes investors less certain of future earnings per share and dividends. As such, a history of earnings variability may be expected to penalize a firm's stock with a lower-than-average price-earnings ratio.

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Earnings Variability

1. Differences in a publicly traded company's year-on-year earnings or earnings per share in both positive and negative directions. Earnings variability is sometimes considered a negative sign as investors do not know whether the company's earnings in one year can be sustained in the next. This can lead to a low P/E ratio as high earnings in a given year do not equate to an increase in share price. It is the opposite of earnings momentum.

2. The amount a worker's wages or salary change from year to year. Earnings variability can occur due to a job change, among other reasons. Between 2003 and 2007, approximately one in five workers saw their earnings increase by 25% or more and one in five saw them decrease by the same amount.