Question

Explain how earnings per share differs from dividend yield.  

Answer 1

First of all let us know the meaning of both the terms -

Earnings per share is an important term to analyse the financial performance of a company. Equity share holders invest their money in the company and suffer business risk and also suffer the business risk . Earnings per share is calculated by dividing the profit attributable to equity share holders with the total outstanding shares during the year

For example net profit after taxes is 20,000

The total number of equity shares is 5000 of face value $10 and market price is $ 20

That means each share has earned a profit of 20000/5000 = 4 $

How ever dividend yield is calculated by dividing the dividend declared with market price of share

Let us make an example here

Let the dividend yield be 15% for the above company

That means it is paying a dividend of 20*15% = 3$

Out of the total earings of the of 4$ the company is paying out $3 and retaining $1 for future investment

Now , Let us differentiate between the both-

EPS tells us about how much earnings the company is able to give for each share a share holder is holding.

however these might not be paid out they may be kept with the company itself.

Dividend yield is the percentage of dividend the company is giving to share holders as a % of their market price

At the bottom line we can say EPS tells Company's profitability and Dividend yield tells us amount of profits paid to equity share holders as cash out of the profits earned as a percentage of market price.