As a result, a diluted EPS will always be lower than the basic EPS.ДЇor example, if you take Company A from above and add 1 million convertible preferred shares to the equation, the new diluted EPS would be $1.33 ($8 million / 6 million shares). This would increase the number of shares, thus reducing the earnings per share. This would apply when a company might have convertible preferred stock options that might become common stock at some point. A diluted earnings per share formula goes one step further by considering all convertible securities. The formula above tabulates all the companyвЂ™s outstanding common shares into the equation. Therefore, the earnings per share is $1.60. ($10 million net profit вЂ“ $2 million dividends) / 5 million shares = $1.6 per share. Use these figures to calculate earnings per share: It has an average of 5 million shares outstanding during the quarter. HereвЂ™s what that might look like in practice.Д¬ompany A has a net income of $10 million for the quarter and pays out $2 million in dividends to its stockholders. With those figures in hand, you can plug them into the earnings per share formula:Д®arnings Per Share = (Net Income вЂ“ Dividends) / Average Number of Shares Outstanding However, to simplify this, you could also use the number of outstanding shares at the end of the reporting period. Most companies use a weighted average number of common shares for the reporting term for greater accuracy. To calculate earnings per share, the companyвЂ™s income statement and balance sheet are used to find net income, dividends paid on preferred stock, and end number of common shares. The EPS is usually reported on a quarterly or annual basis. Generally, the higher the EPS number, the more profitable the company. However, earnings per share can be adjusted for share dilution or extraordinary items, which weвЂ™ll explore below. The EPS figure is determined by dividing the companyвЂ™s net profit by its outstanding shares of common stock. What is earnings per share?Д®arnings per share indicates a companyвЂ™s profitability by showing just how much money a business makes for each share of its stock. HereвЂ™s what you need to know in order to calculate earnings per share.

On the other hand, while falling EPS is generally a negative caused by higher costs or lower revenue, it could have been influenced by a stock split, for example.ДЄ companyвЂ™s EPS could also be positively or adversely affected by economic factors that are beyond its control and also impacting other companies.Earnings per share, or EPS, is a common metric used to assess corporate value.

There are also reasons why a rise or fall in EPS can be somewhat misleading.ДЇor example, if a company buys back some of its own shares, then there will be less ordinary shares on issue and therefore more earnings will be attributed to each, even though profit could have shrunk. In isolation EPS doesnвЂ™t mean a great deal and it should be treated as just one component of your analysis. Ideally, a company will be growing its EPS, alongside rising revenue and profit each year, which should cause its share price to rise over time. Was it from normal, ongoing business operations suggesting that the company has seen a rise or fall in its market share or profit margins? Or was it down to one-off events, such as unusually large expenses or cost cutting, which might have caused an anomaly? However, having established whether EPS has been growing or falling, try to work out the cause. ItвЂ™s a good sign if a company is able to grow its EPS each year. Share prices can often move sharply up or down immediately after a company announces its results as investors quickly decipher them. When companies release their annual reports they will include their EPS and how it compares to the previous year. It also gives you a clearer picture of earnings relative to dividends, as these are also expressed on a per share basis.Д®arnings growth and future earnings potential are arguably the most influential factors on a companyвЂ™s share price.

This equation is useful because it gives you a quick insight into a companyвЂ™s earnings growth from one year to the next. Net profit after tax Г· number of shares on issue = EPS One important method of fundamental analysis is assessing earnings per share.Д®arnings per share (EPS) is the proportion of a companyвЂ™s profit that can be attributed to each outstanding ordinary share in the company.Д®PS is worked out by taking a companyвЂ™s net profit and dividing it by the number of ordinary shares on issue: