What is earnings per share - (EPS)?

Earning per share (EPS) is calculated as the profit of a company divided by the outstanding shares of its common stock.

The resulting number serves as an indicator of a company's profitability.

 It is normal for a company to report EPS that is adjusted for extraordinary items and potential stock dilution. The higher the company's EPS, the more profitable it is considered.

EPS calculation

Earnings per share are calculated as net income (also known as profit or income) divided by available shares. More sophisticated calculations adjust the numerator and denominator for stocks that can be created through options, convertible debt, or warrants.

The fraction of the equation is also more relevant if it is adjusted for continuous operation.

Earnings per share = Common stock outstanding from time to time

                                                   Net Income - Preferred Dividend

To calculate a company's EPS, the balance sheet and income the statement is used to find the period-end number of common shares, dividends paid on shares, and net income.

It is more accurate to use a weighted average number of common shares in the reporting period because the number of shares may change overtime.

Understand Earnings per share

Earning per share is one of the most important variables to find out the price of a share. This is a key component used to calculate the price-to-earnings (P / E) valuation ratio, By dividing the price of a company's stock by its earnings per share, an investor can see the value of the stock by how much the market is willing to pay for each dollar of earnings.

EPS is one of many indicators that you can use to take stock. If you are interested in share trading or investing, then your next step is to choose a broker that works for your investment style.

Compared to EPS, it does not mean much to investors overall because ordinary shareholders do not have direct access to earnings. Instead, investors will compare EPS to the stock price of the stock to determine how the earnings are perceived and how they feel about future growth.