Earnings Per Share (EPS) Calculator
Understanding Earnings Per Share (EPS)
Earnings Per Share (EPS) is a critical financial metric 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. A higher EPS indicates greater value because investors will pay more for a company with higher profits.
The Basic EPS Formula
EPS = (Net Income – Preferred Dividends) / Weighted Average Common Shares Outstanding
Key Components Explained
- Net Income: The total profit of the company after all expenses, taxes, and interest have been paid.
- Preferred Dividends: These must be subtracted from net income because EPS measures profit available to common shareholders.
- Common Shares Outstanding: The number of shares currently held by all shareholders, including restricted shares and those held by company officers.
Practical Example
Imagine "TechCorp" reports a net income of $1,000,000. They have paid out $100,000 in dividends to preferred shareholders. Throughout the year, they had an average of 450,000 common shares outstanding.
Using the formula: ($1,000,000 – $100,000) / 450,000 = $2.00 per share.
This means for every share you own, the company generated $2.00 in profit.