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
stock options and securities convertible into -- is generally viewed as a more accurate measure and is more commonly cited.can be calculated via two different methods: basic and fully diluted. Fully diluted -- which factors in the potentially dilutive effects of warrants,
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,