Nexym
  • Business
  • Finance
  • Technology
  • Health
  • Life
  • More
    • Auto
    • Food
    • Health
    • Home
    • Space
    • Travel

Subscribe to Updates

Get the latest creative news from FooBar about art, design and business.

What's Hot
Flywheel Logo

Flywheel review in 2023

June 8, 2023
Are you planning on visiting New Zealand during Covid-19? If so, this guide will give you a few tips about how to prepare for your trip.

Covid-19 and New Zealand: what you need to know before traveling there

December 6, 2023
Looking for a date? In 2022, you may be able to find love with the help of one of these dating apps.

The best dating apps of 2023

December 6, 2023
Facebook X (Twitter) Instagram
Nexym
  • Business
    Using your personal email account for business is a bad idea. Learn how to get a free business email address and why it's crucial to have one.

    How to get a free business email

    November 30, 2023
    Learn more about Daylight Saving Time (DST), why it exists, how we came up with this idea, and why some countries don't follow DST.

    Daylight Saving Time: How did we start changing clock

    November 29, 2023
    Learn the skills you need to become a great content writer. From writing, editing, and researching to storytelling and creative thinking.

    Top skills you need to become a great content writer

    November 26, 2023
    featured business

    How to see the bigger picture in business

    November 15, 2023
    With Target's recent wage increase, some jobs now offer a salary of $24 per hour. Find out more about the new pay scale here!

    Some Target jobs now pay $24 an hour

    November 15, 2023
  • Finance
    Learn about options and options trading, what an options contract is, what types there are, and the jargon in the market.

    What are options and how to trade them

    December 3, 2023
    Look no further if you're looking for the best credit cards with 0% APR. Here are our top picks!

    The best credit cards with 0% APR in 2023, with great welcome bonuses and rewards

    December 1, 2023
    Mutual funds are a popular way to invest in today's stock market. Learn what mutual funds are and how they work, as well as their benefits and drawbacks.

    What are mutual funds and how to use them

    November 29, 2023
    If you're considering buying or selling a home in the next couple of years, it might be best to wait. The outlook just got worse.

    Here is what Zillow’s new, lower price prediction for property values in 2023 looks like:

    November 27, 2023
    featured optiontrading

    What is options trading? A quick guide and overview

    November 27, 2023
  • Technology
    Flywheel Logo

    Flywheel review in 2023

    June 8, 2023
    exportwp featureimage min

    How to export a WordPress website

    December 6, 2023
    toolssendemailcampaigns featureimage

    Tools to send email campaigns

    December 4, 2023
    Learn how to do a reverse image search on Google Image Search, and create or find an image for your blog post.

    How to do a reverse image search

    December 3, 2023
    Are you looking for a top-of-the-line Android tablet? Read our Samsung Galaxy Tab S8 Ultra review to find out why this device is a perfect choice.

    Samsung Galaxy Tab S8 Ultra review: Is it any good?

    December 1, 2023
  • Health
  • Life
    Looking for a date? In 2022, you may be able to find love with the help of one of these dating apps.

    The best dating apps of 2023

    December 6, 2023
    If you're looking for work, consider these twenty-two businesses paying $15 an hour or more!

    Look at these companies that are paying $15/hour or more

    December 5, 2023
    Are you looking for a figure-flattering maxi dress? Look no further; we've got the best options for you!

    The best slimming maxi dresses in 2023

    December 5, 2023
    Discover the top 15 most successful Socialist countries in the world. See how these countries have succeeded where others have failed.

    Top 15 successful Socialist countries

    December 5, 2023
    We have a great post helping you determine if you should give your dog cough medicine. Check out the full article for more information!

    Should you give your dog cough medicine?

    December 5, 2023
  • More
    • Auto
    • Food
    • Health
    • Home
    • Space
    • Travel
Facebook X (Twitter) Instagram
Trending
  • Flywheel review in 2023
  • Covid-19 and New Zealand: what you need to know before traveling there
  • The best dating apps of 2023
  • How to lose 2 inches of belly fat in 2 weeks
  • How to export a WordPress website
  • Look at these companies that are paying $15/hour or more
  • The best slimming maxi dresses in 2023
  • Best stoneware dishes for your kitchen
Nexym
Home » Finance
Finance

Earnings per share: What they mean and how to calculate them

Eliott BertholdBy Eliott BertholdApril 8, 20236 Mins Read
Facebook Twitter LinkedIn Reddit Telegram WhatsApp Pinterest Email
Do you know what earnings per share means? Learn the definition of EPS, how it's calculated, why it matters and more.
Earnings per share.
Share
Facebook Twitter LinkedIn

What is Earnings Per Share (EPS)?

Earnings per share (EPS) is a financial metric used to calculate the amount of profit a company makes on each share of common stock. EPS is calculated by dividing a company’s net income by the number of shares of common stock outstanding. Investors use EPS to assess and compare companies’ performance before investing in them.

The higher the EPS, the more profitable a company is for investors. EPS may be adjusted for extraordinary items and potential share dilution.

How to calculate EPS

Do you know what earnings per share means? Learn the definition of EPS, how it's calculated, why it matters and more.
Calculating EPS.

Earnings per share (EPS) is one of the most important metrics that investors look at when analyzing a company. The calculation is simple: net income divided by the number of shares outstanding. This figure is usually a weighted average, taking into account different types of shares such as common stock, preferred stock, and warrants.

However, there are a few things to keep in mind when calculating EPS.

First, you need to find net income, which is simply gross profit minus operating expenses and taxes. Then, you need to subtract any dividend payments made during the period, giving you the company’s net profit.

The last thing to consider is that companies often issue more shares to expand their business operations. When this occurs, fully diluted EPS becomes more conservative than net income because the share count tends to increase.

Example:

Here’s an EPS computation using Netflix (NASDAQ: NFLX) as an example. The business declared a total income of $2,761,395,000 in its fiscal year with total outstanding shares of 440,922,000.

Netflix has not issued preferred shares, so we do not need to deduct preferred dividends. Divided by 440,922,000, $2,761,395,000 equals a $6.26 EPS.

Calculating EPS with Excel

After gathering the appropriate data, insert the net income, preferred dividends, and number of outstanding common shares in three adjacent cells, say B3 through B5. Subtract chosen dividends from net income using the method “=B3-B4” in cell B6. To calculate the EPS ratio, enter the formula “=B6/B5” in cell B7.

EPS limitations

Earnings per share, or EPS, is one of the most commonly used metrics to measure a company’s financial performance. EPS is essential because it reflects how much money each share in the company makes.

However, there are several limitations to using EPS as a metric.

First, EPS is calculated solely on net income, so non-cash expenses are subtracted from that number. This can create lumpy capital expenditures that can cause a company’s EPS to vary significantly across periods. Additionally, EPS numbers are most valuable when evaluated with other data. For example, if you compare a company’s EPS to its revenue or operating profit, you can see its financial performance.

Additionally, non-operating expenses, such as tax and interest payments, can affect net income and thus EPS.

EPS numbers can also be manipulated by changing outstanding shares or conducting share issuances, splits, or stock buybacks. Therefore, it is crucial to be aware of these factors when evaluating a company’s EPS number.

What is an acceptable EPS?

Do you know what earnings per share means? Learn the definition of EPS, how it's calculated, why it matters and more.
Acceptable EPS.

There is no definitive answer to this question. A good EPS can vary depending on the industry, the company and individual circumstances.

The answer depends on several factors, such as recent performance, competitors’ performance, and analysts’ expectations. Generally speaking; however, a company with a high EPS is considered to be doing well.

On the other hand, if a company’s EPS is lower than expected or worse than its competitors’, its stock price might decrease. This is because investors will expect the company to make less money in the future.

It’s also important to keep in mind that the absolute value of a company’s EPS shouldn’t change too much from year to year, but the annual growth rate should. This indicates whether or not the company is making more or less money each year.

A company can boost its EPS by increasing its earnings or reducing its share count through share buybacks; however, if it increases its outstanding share count faster than its earnings, its EPS will drop.

As you can see, there are many things to consider when looking at a company’s EPS figure. But overall, it provides a good snapshot of how well the business is doing financially.

Basic vs. diluted EPS

Do you know what earnings per share means? Learn the definition of EPS, how it's calculated, why it matters and more.
Basic vs. diluted EPS.

There are two types of EPS: basic and diluted. Basic EPS does not factor in the dilutive effect of shares that could be issued by a company, while diluted EPS takes into account all potential shares that could be issued. To calculate diluted EPS, you need to know the number of common shares outstanding, the number of convertible preferred shares outstanding, and the number of warrants and options outstanding.

When a company has more than one type of security, it can issue more shares to investors than the number of shares outstanding at any given point in time. This is done through stock options, warrants, and restricted stock units (RSU). For example, if a company has 10 million shares outstanding and issues 1 million options, then the company could give 11 million potential shares. The total number of potential shares is called the “dilution potential.”

The diluted EPS calculation considers all of the potential securities that could be issued and converts them to actual shares. This calculation gives a more accurate representation of how earnings would be diluted if all the likely securities were exercised.

The diluted EPS calculation is necessary because it shows how the earnings per share would be affected if all the additional securities were converted into common stock. It also allows companies and analysts to avoid distortion when adding convertible debt interest back into a diluted EPS calculation numerator.

Difference between EPS and adjusted EPS

The main difference between EPS and Adjusted EPS is that Adjusted EPS takes into account one-time events or items that would otherwise distort a company’s earnings. EPS is calculated by taking its net income and dividing it by the number of shares outstanding. Adjusted EPS, sometimes referred to as recurring EPS, is calculated by taking the company’s net income and dividing it by the number of shares outstanding, minus the effects of one-time events or items.

This typically consists of adding or removing components from net income that have been deemed non-recurring and are not expected to occur again in the foreseeable future.

The main difference between these two calculations is that basic EPS does not consider one-time profits and expenses, while adjusted EPS does. Adjusted EPS is, therefore, a more accurate representation of a company’s earnings performance because it removes items that are not considered representative of its normal operations.

EPS and price to earnings

Comparing P/E ratios inside an industry group can be beneficial, albeit in unexpected ways. While a stock that is more expensive in relation to its earnings per share when compared to rivals may be “overvalued,” the opposite is typically true.

Shareholders are willing to pay extra for a stock regardless of its previous earnings per share if it is predicted to expand or beat its peers. It is natural for the stocks with the greatest P/E ratios in a stock market index to outperform the index’s average.

People also viewed:

Wondering what a t-test is and how it works? This guide will explain everything you need to know about the t-test statistic, including how to use it in your own data analysis.What is a T-Test: Definition currentratio featureimageCurrent ratio: What it is and how to calculate it Learn the basics about what bonds are, why they're important, and how to invest in them.What are bonds? An important investment method explained Credit Karma allows you to take a free snapshot of your credit report and see where it stands. However, there are limitations on the information available, so how accurate is Credit Karma?How accurate is Credit Karma in 2023? APR stands for Annual Percentage Rate and is a common term used to describe the amount of interest you will pay on a loan. APR is commonly used in car loans, credit card offers and mortgages.What is APR? Annual percentage rate explained
earning per share earnings per share EPS what is EPS
Share. Facebook Twitter LinkedIn Reddit Telegram WhatsApp Pinterest Email
Previous ArticleTop 10 secrets to a happy life
Next Article Instant gratification: The pursuit of happiness
Eliott Berthold

Eliott is a Nexym Finance writer. He runs several high yielding portfolios for American and international clients. He teaches first and second year Finance at various universities and enjoys golf and competitive running.

Related Stories

Credit Karma allows you to take a free snapshot of your credit report and see where it stands. However, there are limitations on the information available, so how accurate is Credit Karma?

How accurate is Credit Karma in 2023?

April 5, 2023
Learn the basics about what bonds are, why they're important, and how to invest in them.

What are bonds? An important investment method explained

April 1, 2023
currentratio featureimage

Current ratio: What it is and how to calculate it

April 1, 2023
Wondering what a t-test is and how it works? This guide will explain everything you need to know about the t-test statistic, including how to use it in your own data analysis.

What is a T-Test: Definition

March 29, 2023

Comments are closed.

Connect
  • Facebook
  • Twitter
  • Pinterest
  • Instagram
  • YouTube
  • LinkedIn
  • Reddit
  • TikTok
Don't Miss
Flywheel Logo Reviews

Flywheel review in 2023

By Matthew Drummond

Flywheel is a fast-growing web host that offers high-performance WordPress hosting for agencies, designers, and developers.

Are you planning on visiting New Zealand during Covid-19? If so, this guide will give you a few tips about how to prepare for your trip.

Covid-19 and New Zealand: what you need to know before traveling there

December 6, 2023
Looking for a date? In 2022, you may be able to find love with the help of one of these dating apps.

The best dating apps of 2023

December 6, 2023
If you want to lose weight, this article will give you great tips for targeting your belly area.

How to lose 2 inches of belly fat in 2 weeks

December 6, 2023
  • Auto
    • Auto Reviews
    • Electric
    • Insurance
  • Business
    • Company
    • Government
  • Entertainment
    • Movies
    • Music
  • Finance
    • Credit Cards
    • Crypto
    • Market
    • Personal Finance
  • Food
    • Coffee
    • Drinks
    • Holidays
  • Health
  • Beauty
  • Fitness
  • Food
  • Medical
  • Home
  • Backyard
  • Bathroom
  • Bedroom
  • Cleaning
  • Furniture
  • Home Office
  • Kitchen
  • Life
  • Astrology
  • Family
  • Fashion
  • Outdoors
  • Personal
  • Pets
  • Apple
  • Audio
  • Domain Names
  • Gaming
  • Google
  • Power
  • Reviews
  • Samsung
  • Destinations
  • Gear
  • Services
  • Space
  • Tourism
  • Technology
  • Tutorials
  • Web Hosting
  • WiFi
  • WordPress
  • Travel
  • Shopping
  • Sports
  • Work
  • Stocks
  • Television
  • Web Hosting
Facebook X (Twitter) Instagram Pinterest YouTube LinkedIn Reddit TikTok
© 2023 Nexym Media

Type above and press Enter to search. Press Esc to cancel.