What Is EPS? A Complete Guide to Earnings Per Share

EPS, or Earnings Per Share, is the value of earnings per outstanding share of the business's ordinary stock, as it is a common metric used to measure corporate value. This indicates the business's profitability by showing the profit of the business, and how much profit is generated per share of their stock. Let’s explore what EPS means.

How to Calculate the EPS?

Here is how to calculate the Earnings Per Share:

The formula of Earnings Per Share is:

Earnings per share = Net Income – Preferred Dividends / End of Period Common Shares Outstanding

Where,

Net Income = Business profit after all taxes, expenses, and interest.

Preferred Dividends = The dividends paid to selected shareholders.

Earnings Per Share shows how much of the business's net income is spread to each outstanding share of common stock. So, higher Earnings Per Share suggests better profitability. It is often a positive signal to investors.

Example of Earning Per Share

For Example, suppose that a company has,

	Value
Net Income	60,00,000
Preferred Dividends	6,00,000
Outstanding	6,00,000

Earnings per share = 60,00,000 – 6,00,000 / 6,00,000

= 44,00,000 / 6,00,000 = INR 7.33

So the business Earnings Per Share is INR 7.33, which means each ordinary share earned INR 7.33 during the period. This helps investors to understand how much profit is attributed to each share of the standard stock.

Types of Earning Per Share

Here are the types of Earnings Per Share:

Types	Explantation
Reported EPS or GAAP EPS	This is calculated as per accepted accounting principles
Ongoing EPS or pro Forma EPS	It is based on ordinary net income and excludes income passed as an unusual one-time income.
Retained EPS	This summation of net earnings and the current retained earnings is subtracted from the dividend paid.
Cash EPS	This helps to learn about a particular company’s financial standing. It indicates the exact amount of cash that is earned by the company.
Book Value EPS	This is used to calculate the average amount of business equity in each share. It can also be used to estimate the worth of a company stake if it has to be liquidated.

Conclusion

In conclusion, the Earnings Per Share is a powerful indicator, but it should never be used in isolation, so combine it with other indicators like revenue growth, cash flow, and debt levels to get a complete picture of a company's financial health. We hope this blog on what is Earnings Per Share has been helpful to you.

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