What is Earnings Per Share (EPS)?
The term earnings per share (EPS) represents the portion of a company's earnings, net of taxes and preferred stock dividends, that is allocated to each share of common stock. The figure can be calculated simply by dividing net income earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Because the number of shares outstanding can fluctuate, a weighted average is typically used.
How Does Earnings Per Share (EPS) Work?
Let's assume that during the fourth quarter, Company XYZ reportedof $4 million. During the same time frame, the company had a total of 10 million . In this particular case, the company's quarterly per share (or ) would be $0.40, calculated as follows:
$4 million / 10 million= $0.40
Why Does Earnings Per Share (EPS) Matter?
P/E ratio.is a carefully scrutinized metric that is often used as a barometer to gauge a company's profitability per unit of shareholder ownership. As such, per share is a key driver of share prices. It is also used as the denominator in the frequently cited
accounting changes and restatements. For that reason, free cash flow is seen by some to be a more reliable indicator than . Nevertheless, per share remains the industry standard in determining corporate profitability for shareholders.can be subdivided further according to the time period involved. Profitability can be assessed by prior (trailing) , recent (current) or projected future (forward) . Though earning per share is widely considered to be the most popular method of quantifying a firm's profitability, it's important to remember that themselves can often be susceptible to manipulation,