What are EPS (Earnings Per Share)?

EPS - Earnings Per Share - explained

EPS is an acronym that stands for Earnings Per Share. It is a financial metric that is commonly used by analysts and investors to evaluate the profitability of a company. EPS is calculated by dividing a company's net income by the number of shares outstanding, and it is expressed as a dollar amount per share.

EPS is an important metric for investors in stocks because it provides a measure of a company's profitability on a per-share basis. This allows investors to compare the profitability of different companies, and to evaluate the potential return on their investment in a stock.

EPS is also an important metric for analysts and investors because it is used in the calculation of several other financial ratios, including the price-to-earnings (P/E) ratio and the price-to-earnings growth (PEG) ratio. The P/E ratio is calculated by dividing a company's stock price by its EPS, and it is a commonly used measure of a company's valuation. The PEG ratio is calculated by dividing a company's P/E ratio by its expected earnings growth rate, and it is a measure of a company's valuation relative to its growth prospects.

EPS is calculated by dividing a company's net income by the number of shares outstanding. Net income is the amount of profit that a company generates after accounting for all of its revenues, expenses, gains, and losses. Shares outstanding is the total number of shares of a company's stock that are held by investors, including both common stock and preferred stock.

To calculate EPS, a company first needs to determine its net income. This is done by starting with the company's total revenues, and then subtracting all of its expenses, including the cost of goods sold, operating expenses, interest expenses, taxes, and any other expenses. Any gains or losses from the sale of assets or investments are also included in the calculation of net income.

Once the company has determined its net income, it can calculate its EPS by dividing the net income by the number of shares outstanding. For example, if a company has net income of £1 million and 1 million shares outstanding, its EPS would be £1 per share.

EPS is an important financial metric for investors in stocks because it provides a measure of a company's profitability on a per-share basis. It is also used in the calculation of several other financial ratios, including the P/E ratio and the PEG ratio. By understanding EPS and how it is calculated, investors can better evaluate the profitability and potential return on their investment in a company's stock.

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