Earning per share(EPS) is ratio that indicates the profitability of a company for each share of its stock. It measures how much money a company makes for each share. It is the ratio of net income to outstanding shares of company i.e. EPS is calculated by dividing the net income of the company with the total number of shares of the company.
The more EPS value indicates that the profit of the company is high and if it is low, the profit is also low. But we can not tell whether the arrived EPS value is better or not. We need to compare the EPS of any company with its peer companies EPS in the same industry.
Formula for EPS :
Earning per Share = Net Income / Number of outstanding shares
If the company announced any dividends, that will be subtracted from the net income. Hence the formula will be
EPS = Net Income - Given Dividends / Number of outstanding shares.
We calculate EPS on basis of a company quarterly results or Annual results. That means if a company announces its quarterly or annual financial results, Net income, dividends and available outstanding shares will be taken from the quarterly or annual results sheets.
Example for EPS:
A company named "ABC" has announced net income of 1,00,000rs and it has 10,000 outstanding shares, but the company has not given any dividends. Then the EPS will be 10rs.
EPS = 1,00,000 / 10,000
= 10
Let us assume ABC company announced 2rs dividend per share, then cost for paying dividends will be 10,000 X 2 = 20,000. This will be deducted from the net income. EPS will be 8rs.
EPS = (1,00,000-20,000) / 10,000
EPS = 80,000 / 10,000
= 8
Disclaimer : All the information provided in this article is purely for education purpose only, and it is not an investment advise. Please consult your personal financial adviser before taking any investment decisions.