Earning Per Share (EPS) means profit and loss attributable to equity shareholders of a company and this measure companies profitability.
Further, an entity shall calculate basic earning per share for profit or loss attributable to ordinary equity shareholders of the parent entity . And profit and loss from continuing operations attributable to those equity holders.
Content
1.What is Earning Per Share (EPS)?
2.How to calculate EPS? And what is the formula to calculate it?
3.What is the importance of EPS?
1.What is Earning Per Share (EPS)?
Earning Per Share is a companies net share of profit that is distributed to equity shareholders after paying all debts.
Furthermore, earning per share shows profitable of the company. And it is computed by dividing the company’s net profit with its total number of outstanding shares.
It is to be considered higher the EPS, more profitable the company . In addition, EPS is an important financial measure which indicates the profitability of the company.
Further, it is a tool used by an investors to measure the profitability of a company before buying the shares.
2.How to calculate EPS? And what is the formula to calculate it?
Earning per share shows profitable of the company. And it is computed by dividing the company’s net profit with its total number of outstanding shares.
Earning per share is calculated in two ways –
- Basic EPS= Net income after tax/Total number of outstanding shares
- Weighted EPS= (Net income after tax-Preferred dividend)/Weighted number of outstanding shares
For Instance,
Suppose, a company, PQR, is left with a net income of Rs. 20,00,000 and also has to pay Rs. 8,00,000 as preference dividend is 4,00,000 lakh common shares outstanding (weighted average) in the current period.
Therefore, according to the formula EPS of the PQR company will be
= (Rs. 20,00,000- Rs.8,00,000)/4,00,000
=Rs. 3 per share
In brief, it means company generates Rs.3 for each of its outstanding shares.
3.What is the importance of EPS?
1.EPS is a financial ratio that assist in measuring financial performance of the company.
2. And then, EPS helps the investors to calculate price to earning ratio (P/E) of the company.
3. Moreover, the investor can compare EPS of multiple company in the similar industries for buying the shares of the company (i.e. making investment decision of the company)
Frequently Asked question
1.Is higher or lower EPS is good?
In brief, EPS is to be considered higher the EPS, more profitable the company . Further, it is an important financial measure which indicates the profitability of the company.
2.What is EPS?
Earning Per Share is a companies net share of profit that is distributed to equity shareholders after paying all debts.
3.What is formula to calculate EPS?
As i have said above, Earning per share = Net income after tax/Total number of outstanding shares
