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Earnings Per Share

What is EPS?

It is important for stock traders to understand the definition of EPS (Earning Per Share) before they start investing. EPS is defined as the ratio of the company profit that is distributed to the shares which the shareholders own. If you are seeking profitable investment ventures, it is important to determine the EPS value.

Understanding the EPS formula

To calculate EPS, you need to understand the calculation formula listed below.
EPS = (net income – dividends on preferred stock) / average outstanding common shares.

Let us get an understanding about the terms used in the formula above.

  • When you talk about net income, its value is gauged from the difference between the revenue earned by the company and the costs occurred in the process)
  • Dividends on preferred stock are an asset category. Shareholders who have preferred stocks get an edge over the common stocks of the company.
  • Shareholders own a certain ratio of the total company shares. This number is called average outstanding common shares. Note that, this average common share is different than the average of two values calculated by Average calculator. The value does not remain stable. If a company sells its shares, the value would rise. Similarly, if a company plans to get financial control of its shares, it would start buying them again. This is when the EPS value would decrease.

At times, people fail to understand the formula of EPS. For such users, using the EPS calculator is a more feasible alternative.

Calculation process of EPS

What is the process of calculating EPS? The formula does give a basic knowledge platform. However, going through an example is more explanatory.

Consider that you need to gauge the financial standing of a company with the following particulars.

  1. Net income = 15000
  2. Dividends om preferred stock = 7000
  3. Average Outstanding common shares = 4000

Let us use the EPS formula mentioned above.

EPS = (net income – dividends on preferred stock) / average outstanding common shares.

Inserting the values mentioned above

EPS = (15000 – 7000)/4000

EPS = 2

  • If you have a look at the calculation process mentioned above, it does involve a series of steps. Stock traders and investors actually do not have a lot of time. For them, using this quality earning per share calculator would be a better option. It would generate accurate results for them without the investment of precious time. It is a very simple tool and generates EPS values without any delay.

Uses / Applications of EPS

There is no doubt that the EPS value is used for various concrete purposes. Some of them are listed below.

  1. Market Analytics

Market analysts act as a source of help for stock traders and investors. They have to portray the market flow (positive or negative) by checking the EPS of several companies. Investors decide which company to invest in by checking and calculating the percentage of share this flow. Because the percentage share matters when traders looking for investment in the stock market. Usually, a percentage calculator is used instead of EPS to calculate percentages.

  1. Assistance for Investors

By looking at the EPS value of a share, an investor can decide whether he wants to invest money or not. At times, investors want to invest in a particular sector. By comparing the EPS of a few top-rated companies in that sector, they can finalize the right selection. Similarly, what is GST, sales tax? and discounts are kept in mind before investing money.

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