There are a few different ways to calculate earnings per share (EPS). The most common method is to take the net income for the company and divide it by the number of outstanding shares. This will give you the basic EPS. However, there are other ways to calculate EPS that can give you a more accurate number.
To get a more accurate EPS, you can use the weighted average method. This method takes into account the different classes of shares that a company has. For example, if a company has two types of shares, common and preferred, the weighted average method will give each type of share a different weight.
You can also use the basic EPS formula to calculate diluted EPS. This number takes into account the different types of shares that a company has and the different ways that they can be converted into common shares.
There are a few different ways to calculate earnings per share, but the most common method is to take the net income for the company and divide
- Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock.
- EPS (for a company with preferred and common stock) = (net income – preferred dividends) ÷ average outstanding common shares.
How to calculate earnings per share (with examples)
A weighted earnings per share equation or a basic earnings per share equation can both be used to calculate EPS. Here are the steps to calculate both:
Steps to calculate basic earnings per share
The simplest method for calculating EPS is to use a company’s net income or earnings as the primary number. Usually, they have this information on their website or a financial webpage. Be careful not to mistake quarterly net income for annual.
The number of shares that a company has outstanding on the stock exchange Financial websites should have this information available for public viewing.
Simply divide the total annual net income from the prior year by the total number of outstanding shares to arrive at the basic earnings per share.
Here is an example calculation for basic EPS:
A company’s 2019 net income was $5 billion, and it has 1 billion outstanding shares.
Basic earnings per share = (5 billion / 1 billion)
Basic EPS = 5
Steps to calculate weighted earnings per share
Because it takes into account dividends, also referred to as preferred stocks, that a company issues to its shareholders, weighted earnings per share is a more accurate way to calculate earnings per share (EPS). A dividend is the sum of money that a business distributes to its shareholders as a result of its profits, typically once every three months. Heres how to calculate it:
Normally, a company’s website or a financial webpage will have this information.
Since businesses distribute these dividends to shareholders throughout the year, they are excluded from annual net income.
Similar to the basic earnings-per-share calculation, the annual net income (exclusive of dividends) is reduced by the number of shares.
Here is an example calculation for weighted EPS:
A company’s 2019 net income was 15 billion dollars, its annual dividend to shareholders was 2 billion, and it has 4 billion outstanding shares.
Earnings per share weighted at (15 billion – 2 billion) / 4 billion
Weighted EPS = 13 billion / 4 billion
Weighted EPS = 3.25
What are earnings per share?
The portion of a company’s net income that would be earned per share if all profits were distributed to shareholders is called earnings per share (EPS). EPS provides a wealth of information about a company, including its profitability both now and in the future. EPS can be easily calculated using the fundamental financial data you can find online.
How to interpret results
For you as an investor, EPS is significant because it indicates a company’s profitability, performance, and value. Heres how to interpret EPS results:
A higher EPS means a higher payout
A company that has a higher EPS number is more profitable and able to pay out more money to its shareholders. It’s crucial to remember, though, that no particular fixed number indicates whether you should buy or sell shares. It is advised to always compare a company’s EPS to those of similar businesses.
Use EPS to compare companies
By evaluating how a company performs in comparison to others, you can make more informed investment decisions by comparing the EPS of businesses in the same industry. Also consider other factors when making investment decisions such as:
Use EPS growth trends to forecast future profitability
A company with a steadily rising EPS is viewed as a more reliable investment than one with a fluctuating or declining EPS. You can track a company’s performance over time to make wise investment decisions by doing a per-share analysis.
Use EPS to determine stock value
You can determine whether a company’s stock price is appropriate by looking at its price-earning ratio. EPS provides the earnings data required for the price-earnings comparison. You can determine whether a company is expensive or fairly valued in comparison to other companies in its industry by dividing the share price by the earnings per share.
Types of earnings per share
According to the source of the data, there are three types of EPS:
Trailing EPS
Trailing EPS is based on numbers from the previous year. To calculate earnings per share, this calculation uses revenue from the four prior quarters. Since it uses actual numbers, trailing EPS is typically used to value stocks. However, since trailing EPS does not predict future EPS figures, investors might not pay much attention to it.
Current EPS
Based on figures from the current year, including projections, current EPS is calculated. Data from the four quarters of the current fiscal year are used in this calculation. While some quarters have already ended and are now providing actual data, other quarters are still just projections.
Forward EPS
Forward EPS is based on the future, projected numbers. Investors who are interested in learning about the company’s earning potential frequently request forward projections from analysts or the company itself.
Many investors will evaluate all three types of EPS to help them decide which investments to make.
How to Calculate EPS (Earnings Per Share)
FAQ
How is EPS calculated example?
Simply divide the total annual net income from the prior year by the total number of outstanding shares to arrive at the basic earnings per share. Here is an illustration of how to calculate basic earnings per share (EPS): A company’s 2019 net income was $5 billion, and it has 1 billion shares outstanding.
What is EPS and how is it calculated?
The formula for determining earnings per share (EPS) is to divide a company’s revenue by the number of outstanding shares of its common stock. The resultant figure serves as a gauge of a business’s profitability. A company frequently reports EPS that has been modified for unusual items and potential share dilution.
How do you calculate earnings per share on a balance sheet?
It’s fairly easy to calculate earnings per share by dividing net income or earnings (which can be found on the income statement) by the number of outstanding shares (which can be found on the balance sheet).
How do I calculate EPS in Excel?
After gathering the required information, enter the net income, preferred dividends, and quantity of outstanding common shares into three adjacent cells, let’s say B3 through B5. Enter the formula “=B3-B4” in cell B6 to deduct preferred dividends from net income. To calculate the EPS ratio, enter the formula “=B6/B5” in cell B7.
