Earnings Per Share (EPS):
• Earnings Per Share (EPS) is a popular metric to analyze a company’s efficiency in making a profit from its outstanding share of stock.
• Any organization with high earnings per share is regarded as more profitable than an organization with low earnings per share.
• Earnings per share is the amount of money each share of stock would receive if an organization’s profit was distributed to its shareholders at the end of that fiscal year.
• Earnings per share is a criterion of any organization’s profitability and is regarded as very helpful for investors whether to invest in this organization.
Calculation of Earnings per share or formula
Earning per share is calculated by dividing the organization’s net income by the total number of outstanding shares.
They are generally calculated in two different 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
Types of Earnings Per Share
Earnings per share are generally categorized into four types. They are as follows:
• Basic Earnings Per Share
• Diluted Earnings Per Share
• Earnings per share from continuing operations
• Earnings per share excluding extraordinary items
• Basic Earnings Per Share:
Basic Earnings Per Share is a profit divided by the number of shares outstanding of any organization. The required information is taken from an organization’s income statement or annual report.
EPS = Net Income – Preferred Dividends÷ Weighted Average Shares Outstanding
Where,
The weighted-average share outstanding (WASO) is calculated by adding the number of dividends distributed in each period, then dividing the total number of periods.
Weighted Average Shares Outstanding = (Shares p1 + Shares p2…..) ÷ Npt
Where,
Shares px = the number of shares paid in each period
Npt = the total number of periods
• Diluted Earnings Per Share (DEPS):
Diluted Earnings Per Share calculates the effect of adding all convertible securities that can be converted to common stock. Depending on an organization’s capital structure, Diluted Earnings Per Share is commonly calculated by adding Dilutive Shares to the Earnings Per Share.
DEPS = (Net Income – Preferred Dividends) ÷Weighted Average Shares Outstanding + Dilutive Shares)
• Earnings per share from continuing operations:
This part only includes the Earnings Per Share from everyday operations and excludes the extraordinary items or accounting changes and discontinued operations.
Earnings Per Share (EPS) = {N.I. – Pref. Div. (+ or -) Extra. Items (+ or -) Discontinued Operations} ÷ Weighted Average Common Shares
• Earnings per share excluding extraordinary items:
This part excludes items that are not ordinary in an organization’s operations like the loss on the sale of a large asset or gain on the sale of a large asset, which could affect the results of basic earnings per share calculation.
REFERENCES
https://seekingalpha.com/article/4444681-eps-earnings-per-share?external=true&gclid=CjwKCAjwxZqSBhAHEiwASr9n9A8E2KGNtXdgVsvrJzu5yGWaG1BYkRyIi9rHcAwspwIAt3x2R1YZdRoC0H4QAvD_BwE&utm_campaign=14926960698&utm_medium=cpc&utm_source=google&utm_term=127894704186%5Edsa-1427141793820%5E%5E552341146729%5E%5E%5Eg
https://www.investopedia.com/terms/e/eps.asp
https://www.nirmalbang.com/knowledge-center/earnings-per-share.html
https://economictimes.indiatimes.com/definition/earnings-per-share-eps
https://corporatefinanceinstitute.com/resources/knowledge/finance/what-is-earnings-per-share-eps/
https://groww.in/p/earnings-per-share
https://www.thebalance.com/what-does-eps-stand-for-in-the-stock-market-357640
https://www.bankrate.com/glossary/e/earnings-per-share/
What is EPS (Earning per Share)? | Definition, Types, Formula, and Factors
https://seekingalpha.com/article/4444681-eps-earnings-per-share?external=true&gclid=CjwKCAjwxZqSBhAHEiwASr9n9BTGvgRFH3_N6kZztTiRmZUYwVx7We2JWtiHYlJL4M_Ky0gHeb69phoCx5MQAvD_BwE&utm_campaign=14926960698&utm_medium=cpc&utm_source=google&utm_term=127894704186%5Eaud-1222051479117%3Adsa-1427141793820%5E%5E552341146732%5E%5E%5Eg
https://www.chase.com/personal/investments/learning-and-insights/article/what-is-eps