Jurisdiction(s):
United Kingdom

Key definition

Earnings definition

What does Earnings mean? In corporate and finance practice, earnings means the profit attributable to ordinary shareholders for a reporting period. It is the company’s profit after tax, after finance costs (including interest paid to bondholders) and after any preference dividends. Earnings are commonly shown on a per‑share basis as earnings per share (EPS): profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the period. Example: £2 million earnings and 10 million shares gives EPS of 20p. Earnings is a descriptive accounting and market term, not a statutory one. For listed companies in the...

Law Firm Valuation: Discounted Economic Income Model with EBITDA, Risk-Adjusted Discount and Capitalisation Rates, Terminal Value and Worked Example

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Practice notes

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This Practice Note examines methods for valuing law firms and sets out the elements most prone to shape that assessment. Although several conventional approaches exist, it offers a worked illustration of an Earnings-led valuation (discounted economic income). Investors commonly adopt this approach when pricing a company and, therefore, it is a vital computation to undertake before starting any talks. The outcome might be below your expectations, yet it provides a window into the sum an investor or acquirer could be prepared to offer.

The discounted economic value model

In brief, this model projects a firm’s future net cash profits and discounts them to today’s value. By applying an appropriate discount rate, it seeks to reflect the spectrum of risks the business encounters in generating that earnings flow over time. The exercise, therefore, converts anticipated cash returns across multiple years into a single current figure that recognises uncertainty, timing, and sustainability in the delivery of the net income stream...

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Web page updated on 21/05/2026

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