How to Calculate Earnings per Share
Stock analysts and investors calculate earnings per share (EPS) as a means of conducting an “apples to apples” comparison among company performances. A company’s earnings per share is the portion of its profits allotted to each individual share of outstanding common stock. The earnings per share measure provides for an indication of company profitability and can help analyze and compare stock investment opportunities.
The Earnings per Share Formula
The formula to calculate earnings per share can be written as:
Because the number of shares outstanding can change over the reporting terms, the EPS calculation uses a weighted average in order to achieve the greatest possible accuracy.
The earnings per share measure is used extensively in fundamental analysis as it demonstrates the earnings a company is generating for its shareholders and tracking it over time lets investors know whether the company is headed in the right direction. While newer and smaller companies may show negative earnings as they seek to grow, larger and more established companies are evaluated largely by the earnings they generate. Companies that show decreased EPS over time will likely see their stock prices suffer.
The Various Earnings per Share Measures
Please note that when reviewing a company’s EPS, there are three types you might see:
The earnings per share can also be basic or diluted with diluted EPS offering a full reflection regarding the impact of dilutive securities or “convertible” securities.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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