EPS which is the abbreviated form of Earning Per Share
EPS is another important number while analyzing a company
EPS means how much earning(after deducting expenses, taxes, and interest) each share of a stock made.
It is a financial metric that indicates the profitability of a company and is widely used by investors to assess a company’s performance.
In other words, it represents the portion of a company’s profit allocated to each outstanding share of common stock.
- EPS is reported on a per-share basis, allowing investors to compare the earnings potential of different companies, regardless of their size or the number of shares outstanding.
- It is an important measure for evaluating a company’s profitability and is commonly used in various financial analyses, such as price-to-earnings (P/E) ratios and valuation models.
- It can also be used to track a company’s profitability over time. A company with a consistently increasing EPS is likely to be a more profitable company than a company with a consistently decreasing.
Calculating EPS
- The formula for calculating EPS is as follows:
EPS = (Net Income – Preferred Dividends) / Average Outstanding Shares
where,
- Net Income: This represents the total earnings or profit generated by the company during a specific period after deducting expenses, taxes, and interest.
- This can be found in Profit/Loss Statement of the company’s Financial Statement.
- Preferred Dividends: If a company has issued preferred stock, it may have an obligation to pay dividends to these preferred shareholders. Preferred dividends are subtracted from the net income to determine the earnings available to common shareholders.
- Average Outstanding Shares: This refers to the average number of common shares outstanding during the specified period. It takes into account any changes in the number of shares outstanding due to stock splits, buybacks, or issuances.
- This can be found in NSE website.