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Earnings per share definition

Description

Earnings per share (EPS) is a popular and most often used ratio. It indicates the amount of profit per share. For investors EPS is a common indicator of company's profitability. Data to calculate this ratio is collected from statement of retained earnings.

EPS can be calculated in many different ways, but most of the times the formula you’ll find below is enough to calculate this ratio. This ratio is important for the owners as, it shows the amount of their profit. Investors use it (along with other ratios) while making a decision on their possible investments.

While making a comparison with the other companies’ ratios, earnings per share of current company must be divided by its’ nominal value (face value) of the share.

Norms and limitations

The higher value of the ratio the better.

This ratio might vary within the different industries.

Formula

Net income (net profit, net earnings), usually called “the bottom line”, is a measure which is calculated by taking revenues (sales and other incomes) and adjusting them to the cost of sales, operating cost, depreciation and amortization, interest, taxes and other expenses.

Shares outstanding might be explained as issued and outstanding shares.