Earnings per share ("EPS") is the value of a company's earnings per each share of its outstanding common stock. Often companies use a weighted average level of their common stock, but they may also use either their average shares of common stock or for a quick calculation they may just use the number of outstanding shares for a given earnings reporting date.
The EPS serves as a measure of the profitability of a company. It is calculated to estimate the level of profitability per unit of shareholder ownership.
Things to keep in mind:
1. Two companies may report the same EPS, but one company could generate its EPS with less equity (shareholder investment because it has fewer outstanding shares). This company would be considered more efficient at using its shareholder's investment to generate income.
2. EPS could be inaccurate if income levels have been manipulated by the company to make its profitability look better.
3. EPS is the denominator in the P/E Ratio.
How to calculate EPS:
Net Income - Preferred Stock Dividends
Average Outstanding Shares Common Stock
For example, if a company has net income of $50 million and pays $5 million in preferred dividends and has 10 million shares outstanding for half of the year and 8 million shares outstanding for the other half, the EPS would be $5.00 ($45/$9). The numerator is calculated as $50MM - $5MM = $45MM and the denominator for the average shares outstanding is calculated as ((10MM + 8MM)/2) = 9MM average outstanding shares.
As with other financial measures, EPS should not be the only factor that investors evaluate. Investors should review the financial statements of a company and other financial performance measures.
For more information on EPS please refer to:
Investopedia - http://www.investopedia.com/
The EPS serves as a measure of the profitability of a company. It is calculated to estimate the level of profitability per unit of shareholder ownership.
Things to keep in mind:
1. Two companies may report the same EPS, but one company could generate its EPS with less equity (shareholder investment because it has fewer outstanding shares). This company would be considered more efficient at using its shareholder's investment to generate income.
2. EPS could be inaccurate if income levels have been manipulated by the company to make its profitability look better.
3. EPS is the denominator in the P/E Ratio.
How to calculate EPS:
Net Income - Preferred Stock Dividends
Average Outstanding Shares Common Stock
For example, if a company has net income of $50 million and pays $5 million in preferred dividends and has 10 million shares outstanding for half of the year and 8 million shares outstanding for the other half, the EPS would be $5.00 ($45/$9). The numerator is calculated as $50MM - $5MM = $45MM and the denominator for the average shares outstanding is calculated as ((10MM + 8MM)/2) = 9MM average outstanding shares.
As with other financial measures, EPS should not be the only factor that investors evaluate. Investors should review the financial statements of a company and other financial performance measures.
For more information on EPS please refer to:
Investopedia - http://www.investopedia.com/