Earnings per share



Earnings per shar


Earnings per share , or EPS , is a measurement of a company's profitability . To calculate earnings per share, companies first have to calculate the earnings of the company for the period in question. This can be done in a number of ways, but usually, it's with the use of an income statement. An income statement is a list of all the revenue and expenses for a particular time period. Companies also have to have a share of common stock outstanding in order to calculate earnings per share. Companies get their profits from three places: sales, the interest income on their capital, and the dividends from their holdings in other companies. Once companies have all the information they need to calculate earnings per share, they can divide this amount by the total outstanding shares of common stock to get the earnings per share.



The earnings per share (EPS) calculation for any given company is calculated using the difference between net income and the total number of shares outstanding multiplied by the price paid per share. In other words, EPS Net Income ÷ Shares Outstanding x Price Per Share.


For example, let's say Company A has $100 million in annual revenues and $50 million in profits. If they have 1 billion shares outstanding, their EPS would be.005 ($50 million divided by 1 billion). Let's say that they trade at $10 per share.


If Company B had the same revenue and profit figures but only 650 million shares outstanding, their EPS figure would be.0065 ($50 million divided by 650 million). This means that despite having half as many shares, Company B's EPS is 65% higher than Company A's.

  

Earnings Per Share (EPS) - Is the amount of profit generated by each share of common stock that is outstanding at year-end divided by the total number of shares outstanding at year-end. EPS is used in valuing companies. In other words, the higher the EPS the better. 

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