Earnings Per Share (EPS)

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Earnings per share (EPS) is the portion of a firm’s profit that is allocated to each share of common stock. It serves as an indicator of the profitability of a company. It is calculated using the following formula:

EPS = (Net Income or Earnings – Preferred Dividends)/ Weighted Average Common Shares

For example, a firm reported net income of $4 million. During the same time period, the firm has a total of 10 million shares outstanding. In such situations, the firm’s quarterly earnings per share or EPS would be $0.40 i.e., $4million/10 million shares = $0.40

EPS is a carefully scrutinized metric which is used as a barometer to gauge the profitability of a firm per unit of a shareholder ownership. As such, it is a key driver of share prices and is used as a denominator in the frequently used P/E (profit to earnings) ratio.

To calculate EPS, balance sheet and income statement are used to calculate the weighted average number of common shares, dividends paid on the preferred stock if any, and earnings or net income. It is more precise to use a weighted average no. of common shares over reporting term as the no. of shares could change as time passes by. Any stock dividends or splits that take place should be reflected in the calculation of weighted average no. of shares which are outstanding.

EPS can be calculated in two methods: Basic EPS or Diluted EPS. Though EPS is widely used to track a firm’s performance, its shareholders are not given access to view these profits.

Rajagiri Center for Business Studies  the top b schools in Kochi spanning an area of around 75 acres at Kakkand in Ernakulam. Listed as the best MBA colleges in Kochi, RCBS is the leading management institution in India. Offering a choice of post-graduation courses, Rajagiri, the Businessschools in Kerala promising you a great career ahead.


For admissions, visit : https://rcbs.rajagiri.edu/



Location: Kerala, India

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