Question

what is the earning per share..

Answer 1

Solution:

Earnings per share (EPS) is the portion of a company's profit allocated to each share of common stock. Earnings per share serve as an indicator of a company's profitability. It is common for a company to report EPS that is adjusted for extraordinary items and potential share dilution. Most simply, EPS is calculated as:

EPS = (Net Income - Preferred dividends) / Weighted average common shares

How to Calculate Earnings Per Share

To calculate a company's EPS, the balance sheet and income statement are used to find the weighted average number of common shares, dividends paid on preferred stock (if any), and the net income or earnings. It is more accurate to use a weighted average number of common shares over the reporting term, because the number of shares can change over time. Any stock dividends or splits that occur must be reflected in the calculation of the weighted average number of shares outstanding. Some data sources simplify the calculation by using the number of shares outstanding at the end of a period.

Alternatively Earnings per share can be calculated in two ways:

1) Earnings per share: Net Income after Tax/Total Number of Outstanding Shares

2) Weighted earnings per share: (Net Income after Tax - Total Dividends)/Total Number of Outstanding Shares

A more diluted version of the ratio also includes convertible shares as well as warrants under outstanding shares. It is considered to be a more expanded version of the basic earnings per share ratio.

For an investor who is primarily interested in a steady source of income, the EPS ratio can tell him/her the room a company has for increasing its existing dividend. Although, EPS is very important and crucial tool for investors, it should not be looked at in isolation. EPS of a company should always be considered in relation to other companies in order to make a more informed and prudent investment decision.