Earnings per share, or EPS, is a ratio that divides a company's earnings by the number of shares outstanding to evaluate profitability and gain a pulse of the company's financial health. In its most basic form, it is calculated as:
EPS = (Net Income) / (Common Stock Outstanding)
Net Income, divided by the shares of outstanding Common Stock. To get a more accurate projection of earnings on a per share basis, both Net Income and Common Stock are often adjusted by investors.
These values are found on the income statement and balance sheet.
There are three EPS calculations:
This is because, like debt, they are an obligation required to be paid before the common stockholders receive dividends.
This number changes often, so investors sometimes use the weighted average of the shares outstanding to determine the EPS for a specific time period.
When calculating the quarterly EPS for a company, using the weighted average shares outstanding for the time period may give you a better picture than the shares outstanding on the last day of the quarter.
EPS stands for earnings per share, which is the amount of a company’s net earnings per share of outstanding stock.
Earnings per share, or EPS, is a ratio that divides a company’s earnings by the number of shares outstanding to evaluate profitability and gain a pulse of the company’s financial health.
In its most basic form, it is calculated as: EPS = (Net Income) / (Common Stock Outstanding)
There are three EPS calculations. Trailing EPS uses historical earnings, typically from the previous four quarters in its calculation. Current EPS typically uses earnings from the four quarters of the current fiscal year, some of which may have passed, and some of which is in the future. Forward EPS typically uses projections of earnings, often for the coming four quarters.
Earnings Per Share (EPS) is reported on a company's income statement. It is often reported on a basic and diluted basis, which takes into account the impact of dilutive securities such as stock options and convertible debt.
About the Author
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
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