Earnings Per Share (EPS)

What is Earnings per Share (EPS)?

Earnings Per Share, or EPS, is simply the profit of the firm per outstanding share. The higher the value of EPS, the more profitable the company is. The calculation for EPS is simply Net Income dividend by number of shares outstanding. An example of calculating earnings per share is as follows:

  • Firm has net income of $100 million
  • There are 40 million shares outstanding
  • EPS would be $100,000,000 / 40,000,000 = $2.5

Usually, number of shares is calculated as a weighted average. For example if a the firm had 35 million shares for Q1 and then 40 million shares for the rest of the year, the weighted average number of shares would be:

  • 35,000,000 x 0.25 + 40,000,000 x 0.75 = 38,750,000

If this was the case, actual EPS would be $100,000,000 / 38,750,000 = $2.58 which is a 3% increase over the previous calculation so it is important to take care.

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