Basic Earnings Per Share EPS: Definition, Formula, Example

how to find earnings per share

Investors scrutinize both EPS growth, dividend yield, and other indicators as measures of financial health and the potential for reliable income. Earnings Per Share (EPS) and dividends are carefully linked, influencing the income potential for investors. A company’s EPS, derived from its net income, contributes to the foundation for dividend payments. The EPS formula calculates how much profit per share the company has earned during a reporting period.

What are the types of EPS?

Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts. Thus, the “Net Earnings for Common Equity”—which is calculated by deducting the preferred dividend from net income—amounts to $225 million. For an illustrative, real-life depreciation methods example, the following screenshot below is of the income statement of Apple (AAPL) from its 10-K filing for fiscal year ending 2022. The distinction between the basic and diluted EPS can be seen in the denominator of their respective formula.

how to find earnings per share

PE ratio below industry average

how to find earnings per share

When calculating for diluted EPS, we always use the if-converted method. And so diluted share count equals 10 million shares plus another 500,000 (the 1 million shares underlying options, less than 500,000 theoretically repurchased). Diluted EPS is calculated by dividing the $10 million in net profit by the 10.5 million in diluted shares, giving a result of 95 cents. The first step in an EPS calculation is subtracting preferred dividends from net income.

What Is EPS Used For?

Nevertheless, keep in mind that these EPS bets are also relative, based on the market and economic conditions for corporate profits. A higher EPS generally indicates a higher value and profits relative to share price. Instead, you could look at the EPS trend over time to see if the company is on its way to becoming profitable, or evaluate other metrics like revenue growth, customer acquisition, book value, etc.

In such cases, the company may be investing heavily in expenses like R&D to grow. However, there’s not necessarily one quantifiable number that can be considered a “good” EPS, as there are other factors to consider when determining your interpretation. Below is the calculation of Pfizer’s (PFE) EPS for the quarter that ended on July 3, 2022.

  1. The forward EPS is calculated using projections for some period of time in the future (usually the coming four quarters).
  2. If a company pays out $0.60 per share in dividends over the course of a year and has EPS of $0.40, it has a dividend payout ratio of 150% and will not be able to afford its dividend indefinitely.
  3. As such, basic EPS will always be the higher of the two since the denominator will always be bigger for the diluted EPS calculation.

This is made by subtracting the income from the discontinued operations from the total income. Due to negative EPS, many investors are hesitant to invest in a company with a negative EPS. This is because a negative EPS tells investors a company is not currently profitable. A value investor might buy XYZ stock out of a belief that it is trading at a discount to its fair value, as demonstrated by the higher PE ratios of similar shoe companies. For example, on May 31, 2023, online pet supply vendor Chewy reported EPS of $0.05 per share for Q1 2023, when the consensus estimate was -$0.04 per share.

Below is a complete overview of EPS, including how to calculate it, limitations, the different types, and basic vs diluted EPS. The net dilution equals the gross new shares in each tranche less the shares repurchased. Watch this short video to quickly understand the main concepts covered in this guide, including what Earnings Per Share is, the formula for EPS, and an example of EPS calculation. Since every share receives an equal slice of the pie of net income, they would each receive $0.068. Bank of America (BAC), for example, is in the financial services sector.

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