How to Calculate Profit Earned per Share

Earnings Per Share (EPS) Calculator

Enter 0 if no preferred dividends are paid.

Earnings Per Share (EPS):

function calculateEPS() { var netIncome = parseFloat(document.getElementById('netIncome').value); var prefDividends = parseFloat(document.getElementById('prefDividends').value); var shares = parseFloat(document.getElementById('sharesOutstanding').value); var resultArea = document.getElementById('epsResultArea'); var display = document.getElementById('epsValue'); if (isNaN(netIncome) || isNaN(prefDividends) || isNaN(shares)) { alert("Please fill in all fields with valid numbers."); return; } if (shares <= 0) { alert("Outstanding shares must be greater than zero."); return; } var profitAvailable = netIncome – prefDividends; var eps = profitAvailable / shares; display.innerHTML = "$" + eps.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); resultArea.style.display = "block"; }

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Understanding How to Calculate Profit Earned Per Share

Earnings Per Share (EPS) is one of the most critical metrics used by investors to determine the profitability of a company on a per-share basis. It essentially tells you how much of the company's total profit is allocated to each outstanding share of common stock.

The Profit Per Share Formula

To calculate the profit earned per share, you need to subtract any dividends paid to preferred shareholders from the company's net income, then divide that result by the total number of common shares currently held by all stockholders. The formula is expressed as:

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

Breakdown of Components

• Net Income: This is the total profit of the company after all expenses, taxes, and interest have been paid.
• Preferred Dividends: These are payments made to preferred shareholders, which must be deducted because EPS measures the profit available specifically to common shareholders.
• Outstanding Shares: This is the weighted average number of common shares held by the public and company insiders during a specific reporting period.

Practical Example

Imagine a company, "TechGlobal Corp," which reports a net income of $1,000,000 for the fiscal year. They paid out $100,000 in dividends to preferred shareholders. Currently, there are 200,000 common shares outstanding.

Step 1: Calculate Net Profit for Common Stock: $1,000,000 – $100,000 = $900,000.
Step 2: Divide by Shares: $900,000 / 200,000 = $4.50.

In this case, the profit earned per share (EPS) is $4.50. This means for every single share you own, the company generated $4.50 in profit.

Why EPS Matters

Investors use EPS to compare companies within the same industry. A higher EPS often indicates higher profitability and can lead to an increase in the stock price. Furthermore, EPS is the foundational component of the Price-to-Earnings (P/E) ratio, which helps investors determine if a stock is overvalued or undervalued relative to its earnings power.