Earnings per share (EPS) is a financial ratio that measures the amount of net income earned by a company on a per share basis. It is calculated by dividing the company’s net income by the number of shares outstanding. EPS is a commonly used metric to evaluate the profitability of a company, and it is often used in conjunction with other metrics, such as price-to-earnings ratio (P/E ratio), to assess the value of a company’s stock.
To calculate earnings per share (EPS), you need to divide a company’s net income by the number of shares outstanding. Here’s the formula:
EPS = Net income / Number of shares outstanding
For example, let’s say that a company has a net income of $100,000 and there are 10,000 shares outstanding. The EPS for this company would be $10 ($100,000 / 10,000 = $10).
It’s important to note that there are different ways to calculate EPS, depending on the accounting method used and the type of earnings being reported. For example, basic EPS excludes any dilutive effects of stock options and other securities, while diluted EPS takes into account the potential dilution that could occur if all outstanding options and warrants were exercised.
In addition, there are different types of earnings that can be reported, such as net income from continuing operations, which excludes income or losses from discontinued operations, and net income available to common shareholders, which excludes the portion of net income that is allocated to preferred shareholders.
To accurately calculate EPS, it’s important to use the appropriate accounting method and type of earnings. You can find this information in a company’s financial statements, which are typically published in their annual report or on their investor relations website.