Corporate Accounting

What is EPS? How to Calculate EPS?

Earnings per share (EPS) is one of the most important metrics for investors in the market since this tells how much profit a company has made on its shares.

In other words, Earnings per share (EPS) is the amount that can be put on each ordinary share that was on the market during the period.

EPS

Calculated quarterly or annually, earnings per share (EPS) is a measure of a public company’s profit per outstanding share of stock. EPS is calculated by dividing the quarterly or annual nett income of a firm by the number of its outstanding shares of stock. The higher a company’s EPS, the more value investors see in the company.

EPS Formula

To calculate earnings per share, you first need to know how much income a company makes per share (also called basic earnings per share, or diluted earnings per share). You then divide this amount by the number of shares outstanding to get earnings per share. Earnings per share are also called EBITDA (earnings before interest, taxes, depreciation, and amortization).

EPS is calculated by dividing the company’s net profit by its shares outstanding.

EPS = Net Income / Common Shares Outstanding

Types of Earnings per Share (EPS)

Basic EPS

Basic earnings per share (EPS) is a measure of the company’s profit or loss for a specified period of time. It is derived by dividing the profits or losses for the specified period by the number of common shares outstanding.

Diluted EPS

Diluted EPS refers to earnings before giving effects to all of the outstanding stock options, securities and other awards held by existing and new stockholders. This is calculated after deducting stock-based compensation (both amortization of the fair value of stock options and grant of restricted shares and share appreciation rights) and any dividends paid to existing stockholders.

This type of calculation is used for the purpose of comparing a company’s performance to that of other companies and for the purpose of making comparisons among other similar companies.

Basic EPS measures the profitability of a company from the perspective of common shareholders. Diluted EPS takes into account the dilutive effect of securities, such as stock options. As such, diluted EPS is generally lower than basic EPS.

Summary

There are a few things to keep in mind when analyzing EPS. First, EPS can be affected by changes in accounting methods. Second, EPS can be affected by one-time items or extraordinary items. And finally, EPS can be affected by the number of shares outstanding.

The EPS metric is not perfect, but it is a useful tool in financial analysis. When used correctly, it can give you a good idea of a company’s profitability and growth potential.