Determine a company's profitability per individual share of common stock.
How to Calculate Earnings Per Share Example
Earnings Per Share (EPS) is one of the most vital financial metrics used by investors and analysts to gauge a company's profitability. It represents the portion of a company's profit allocated to each individual share of common stock.
The Basic EPS Formula
To find the EPS, you subtract any preferred dividends from the net income and divide the result by the total number of outstanding common shares during that period.
EPS = (Net Income – Preferred Dividends) / Average Outstanding Shares
Step-by-Step Calculation Example
Let's look at a realistic example of how to calculate earnings per share:
Financial Metric
Value
Net Income
$1,200,000
Preferred Dividends
$200,000
Common Shares Outstanding
500,000
Calculation:
Subtract Preferred Dividends from Net Income: $1,200,000 – $200,000 = $1,000,000 (Earnings available to common shareholders).
Divide by Outstanding Shares: $1,000,000 / 500,000 = $2.00.
Result: The Earnings Per Share is $2.00.
Why EPS Matters for Investors
EPS is a primary component used to calculate the Price-to-Earnings (P/E) ratio. A higher EPS generally indicates better profitability and may lead to a higher stock price over time. It allows investors to compare companies of different sizes within the same industry by normalizing profit on a per-share basis.
Types of EPS
Basic EPS: Uses current outstanding shares without considering potential dilution.
Diluted EPS: Accounts for all convertible securities (like stock options or convertible bonds) that could be turned into shares, providing a "worst-case" scenario for shareholders.
function calculateEarningsPerShare() {
var netIncome = parseFloat(document.getElementById('netIncome').value);
var prefDividends = parseFloat(document.getElementById('prefDividends').value);
var avgShares = parseFloat(document.getElementById('avgShares').value);
var resultDiv = document.getElementById('eps-display-result');
var output = document.getElementById('eps-text-output');
// Default preferred dividends to 0 if empty
if (isNaN(prefDividends)) {
prefDividends = 0;
}
// Validation
if (isNaN(netIncome) || isNaN(avgShares)) {
resultDiv.style.display = "block";
output.innerHTML = "Please enter valid numbers for Net Income and Shares Outstanding.";
return;
}
if (avgShares <= 0) {
resultDiv.style.display = "block";
output.innerHTML = "Average shares must be greater than zero.";
return;
}
// Calculation logic
var earningsAvailable = netIncome – prefDividends;
var eps = earningsAvailable / avgShares;
// Display Results
resultDiv.style.display = "block";
var html = "
Earnings Available to Common Shareholders: $" + earningsAvailable.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + "
";
html += "
Final Earnings Per Share (EPS):$" + eps.toFixed(2) + "