How to Calculate per Share Earnings

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Earnings Per Share (EPS) Calculator

Earnings Per Share (EPS)
function calculateEPS() { var netIncome = parseFloat(document.getElementById('netIncome').value); var prefDiv = parseFloat(document.getElementById('preferredDividends').value) || 0; var shares = parseFloat(document.getElementById('sharesOutstanding').value); var resultDiv = document.getElementById('epsResult'); var valueDisplay = document.getElementById('epsValue'); if (isNaN(netIncome) || isNaN(shares) || shares <= 0) { alert('Please enter valid numerical values. Shares outstanding must be greater than zero.'); return; } var eps = (netIncome – prefDiv) / shares; valueDisplay.innerHTML = '$' + eps.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); resultDiv.style.display = 'block'; }

How to Calculate Per Share Earnings (EPS)

Earnings Per Share (EPS) is one of the most critical 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

EPS = (Net Income – Preferred Dividends) / Average Outstanding Shares

Understanding the Components

  • Net Income: This is the total profit of the company after all expenses, taxes, and interest have been paid.
  • Preferred Dividends: These are dividends promised to preferred shareholders. Since EPS measures the value available to common shareholders, these dividends must be subtracted from the net income.
  • Average Outstanding Shares: This is the weighted average of the number of shares currently held by all stockholders during the reporting period.

Why EPS Matters

A higher EPS indicates greater value because investors will pay more for a company's shares if they think the company has higher profits relative to its share price. It is the "E" in the famous P/E (Price-to-Earnings) ratio, which helps determine if a stock is overvalued or undervalued.

Example Calculation

Imagine "TechCorp" has a Net Income of $1,000,000. They pay $100,000 in Preferred Dividends. Throughout the year, they had an average of 200,000 Outstanding Shares.

  1. Subtract dividends from income: $1,000,000 – $100,000 = $900,000.
  2. Divide by shares: $900,000 / 200,000 = $4.50.

The Earnings Per Share for TechCorp would be $4.50.

Basic vs. Diluted EPS

While this calculator computes Basic EPS, investors also look at Diluted EPS. Diluted EPS accounts for all "convertible" securities like stock options and convertible bonds that could potentially become shares in the future. Diluted EPS is usually lower and provides a more conservative view of profitability.

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