Earnings per Share put simply, is a chunk of the total profit that is distributed to the company’s shareholders that corresponds to the proportion of each share held by the shareholders.
It is the key variable used in gauging the profitability of investing in a given company’s stocks.
Calculating Earnings per Share is quite a complex process when done manually, which is why, we have developed this calculator to enable you to determine it with ease.
For curious cats out there who want to find out for themselves how calculating the Earnings per Share works, keep reading further.
As you already know the formula if you followed through the essay, we are a step closer to calculating the earnings per share ratio ourselves manually. All we need now are the values for each of the variables used in the EPS Formula.
The formula for the measurement is given below:
\(\mathbf{Earnings Per Share = \dfrac{(Net Income - Preferred Stock Dividends)}{Average Outstanding Common Shares}}\)
Where,
Net Income: Net Income is the total profit of the company subtracted from its total revenue.
Preferred Stock Dividends: Preferred Stock Dividends are the payments/returns received by shareholders who own the preferred stock of a company. As evident from the name, these stocks grant their shareholders preference over the common stock. The preferred stocks generally yield higher returns than the common ones. However, they do not give shareholders, voting rights.
Average Outstanding Common Shares: These are the number of total shareholdings of a company. This number is prone to flux as companies frequently issue new stocks and sometimes buy back their own shares.
Lets now begin to calculate the earnings per share ratio with sample values. By now you know that we need the net income value, preferred stock dividends’ value and lastly, the value of average outstanding common shares.
Suppose,
Net Income of a company \(= \$2.50 billion = \$2,500,000,000\)
Preferred Stock Dividends \(= \$150 million = \$1,50,000,000\)
Average Outstanding Common Shares \(= \$270 \mathrm{million} = \$2,70,000,000\)
Given the equation:
\(\mathbf{EPS = \dfrac{(Net Income - Preferred Stock Dividends)}{Average Outstanding Common Shares}}\)
\(\mathrm{EPS} = \dfrac{(\$2,500,000,000 - \$1,50,000,000)}{\$2,70,000,000}\)
We get,
\(\mathrm{EPS} = 8.70\)
Earning of a company shows its profitability and is assumed to be the one of the most significant indicators of the firm’s financial well-being. It’s worthy of mention that Earnings per Share only take into account the common stocks not the preferred stocks.
Earnings are typically listed quarterly by the publicly open listed firms and it is observed that research specialists and potential investors pursue these seasons of earnings very closely.
Our EPS estimator is a quality forged online tool that does all the relevant math for you to save your invaluable time. Your part! You only have to input the values that are required in its formula to execute the process.
So, it’s just input-output stuff. You give use the input and we give you the output.
Using it is pretty simple: just input the following:
After inputting these values, just click on ‘calculate’ and our tool does the rest of the job. In less than two seconds, it will produce the EPS value based on the given values.
When it comes to Earnings per Share and Capital, there’s a catch. Not all companies with the same EPS are equally profitable. Some of them with lesser net assets are relatively more efficient at using their wealth to produce income with all other things equal like the rest of them.
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