Earnings Per Share: How to Calculate & Examples

The higher a company’s EPS, the more potential profit investors may expect to earn on their stock holdings. Still, adjusted EPS can sometimes provide a better “look-through” on the company’s profitability and performance, if the metric is not abused by management teams. EPS by itself doesn’t tell you that much about a company, but rather offers a picture of profitability at a point in time, often a given quarter or year. The price-to-earnings ratio (P/E) is one of the most widely used tools that investors and analysts use to determine a stock’s valuation. The P/E ratio is one indicator of whether a stock is overvalued or undervalued. Also, a company’s P/E can be benchmarked against other stocks in the same industry or the S&P 500 Index.

1. Choose the stock you want to analyze from the search bar (which will populate based on the ticker) or enter the financial data to explore from past years or quarters.
2. Additionally, share issuance and stock splits could dilute earnings per share.
3. A stock with a price of $30 and $3 in EPS has a much lower price-to-earnings ratio than does a stock with a price of $300 and the same $3 in EPS.
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5. On the other hand, diluted EPS factors in potential dilution, thus providing a conservative figure for EPS.
6. Understanding EPS is a step in fundamental analysis — but only a step.

For instance, if the company’s net income was increased based on a one-time sale of a building, the analyst might deduct the proceeds from that sale, thereby reducing net income. The core reason is that share counts can be extraordinarily different. It’s worth noting that not all potential equity stakes are included in the diluted share count or in diluted EPS. Options and warrants can be excluded as “anti-dilutive” for two very different reasons.

Examples of Earnings Per Share (EPS)

Instead, investors will compare EPS with the share price of the stock to determine the value of earnings and how investors feel about future growth. Any stock dividends or splits that occur must be reflected in the calculation of the weighted average number of shares outstanding. Some data sources simplify the calculation by using the number of shares outstanding at the end of a period. In that case, the options are excluded because they would increase the diluted share count — and thus actually decrease the loss per share. In that event, the higher diluted share count is making the business look better than it might otherwise be.

Basic Earnings Per Share Calculation

Shareholders might be misled if the windfall is included in the numerator of the EPS equation, so it is excluded. To better illustrate the effects of additional securities on per-share earnings, companies also report the diluted EPS, which assumes that all shares that could be outstanding have been issued. Earnings per share shows up on the profit and loss statement; book value (also known as shareholders’ equity) on the balance sheet. As with any fundamental metric, earnings per share on its own doesn’t define whether a stock is a buy or sell. That said, a single EPS value for one company won’t give you the full story. The number is more valuable when it’s measured against other companies in the same industry and compared to the company’s P/E Ratio.

EPS is affected by a company’s earnings and number of outstanding shares. If earnings decrease or the number of shares increases, EPS will decline as well. However, interpretation should consider industry norms and growth expectations. The P/E ratio reflects market expectations, showcasing how much investors are willing to pay for each dollar of a company’s earnings relative to its share price.

Video Explanation of Earnings Per Share Formula (EPS)

A company with negative earnings per share is not necessarily a company with little or no value. Why the EPS is negative usually is more important than by how much it’s negative. As noted in the discussion surrounding anti-dilutive shares, a company can post a net loss, or negative net profit.

By dividing a company’s share price by its earnings per share, an investor can see the value of a stock in terms of how much the market is willing to pay for each dollar of earnings. If it loses $10 million with 10 million shares outstanding, basic loss per share is $1.00 even. But the outstanding options — whether in the money or not — do not affect diluted share count. Again, they are anti-dilutive; if they were added to the diluted share count, loss per share would improve slightly, to $0.95. This measurement figures into the earnings portion of the price-earnings (P/E) valuation ratio. The P/E ratio is one of the most common ratios utilized by investors to determine whether a company’s stock price is valued properly relative to its earnings.

To calculate earnings per share, take a company’s net income and subtract that from preferred dividends. Then divide that amount by the average number of outstanding common shares. EPS is calculated by dividing the company’s net income by the total number of outstanding shares of common stock. On the other hand, diluted EPS factors in potential dilution, bookkeeping training programs thus providing a conservative figure for EPS. Earnings per Share (EPS) is a financial metric that divides a company’s net income by the number of outstanding shares of its common stock. In simpler terms, it represents the portion of a company’s profit that would be distributed to each share if the company decided to distribute all of its earnings.

Investors have a vast collection of financial data and indicators to use when selecting stocks, and one of the most common ratios used is earnings per share or EPS. But the EPS calculation can be tedious, especially if you aren’t sure of the formula. However, if the preferred shares are converted, then the dividend is added back to net income (and the new shares are added to the shares outstanding) for the purposes of calculating diluted EPS. The earnings per share metric, often abbreviated as “EPS”, determines how much of a company’s accounting profit is attributable to each common share outstanding.

This is because a negative EPS tells investors a company is not currently profitable. Choose the stock you want to analyze from the search bar (which will populate based on the ticker) or enter the financial data to explore from past years or quarters. For example, Tesla’s most recent report announced $12.556 billion in net income.

Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others. So, for every share of Company A that is outstanding, the company earned $5 during the fiscal year. No single ratio will tell an investor everything they need to know about a stock. Investors should use a variety of financial ratios to assess the value of a stock. Nevertheless, it’s important not to limit your fundamental stock research only to EPS, as other metrics should be evaluated as well to generate a well-rounded assessment.

The EPS figure is important because it is used by investors and analysts to assess company performance, to predict future earnings, and to estimate the value of the company’s shares. The higher the EPS, the more profitable the company is considered to be and the more profits are available for distribution to its shareholders. Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability. It is common for a company to report EPS that is adjusted for extraordinary items and potential share dilution. The diluted share count differs from the basic share count in that it adds shares that aren’t yet issued — but could be.

However, it is important to consider other metrics to get a fuller understanding of the company’s health. A higher EPS generally indicates a higher value and profits relative https://simple-accounting.org/ to a company’s stock price, though there’s no number set as a “good” EPS. Instead, consider EPS trends over time and how a company’s EPS compares to that of its peers.

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The dividend payout ratio, calculated by dividing annual dividends per share by EPS, gauges the proportion of earnings distributed to shareholders. A robust EPS is important for sustaining dividends, reflecting a company’s capacity to generate profits consistently. Net income available to shareholders for EPS purposes refers to net income less dividends on preferred shares. Dividends payable to preferred shareholders are not available to common shareholders and must be deducted to calculate EPS.

Of course, no metric is perfect on its own, and EPS has flaws, but more on that later. Earnings per share (EPS) is one of the best indicators of stock price performance. The MarketBeat EPS calculator lets you calculate the earnings per share of a company using just three data points. When calculating for diluted EPS, we always use the if-converted method. The earnings per share (EPS) reported by a company per GAAP accounting standards can be found near the bottom of a company’s income statement, right below net income. Throughout fiscal year 2021, the company issued no new shares and repurchased 20 million shares, resulting in 140 million common shares outstanding at the end of the period.