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‘Earnings per share‘ is net earnings accrued to equity shareholders against each share.
Earnings per share (EPS) is profit/earnings after tax (PAT) deducting preference share dividend per one share outstanding.
EPS Formula
The mathematical expression of the formula of EPS is as follows:
| Net Income (NI) – Preference Share Dividend | ||
| Earnings Per Share (EPS) | = | ————————————— |
| Average Number of Equity Shares Outstanding |
We can calculate the EPS using the following calculator by inputting Net Income, preference dividend and Average No. of Equity Share Outstanding. Let’s how to insert the inputs.
Net Income
It is the net income i.e. profit after taxes reported by a company.
Preference Dividend
It is the dividend that accrues to the preference shareholders.
This field is a crucial field that changes the result of the calculation to a great extent. It can be done in 2 ways.
- Last Outstanding: This figure can be taken as the last outstanding of equity shares at the end of the financial year as per the shareholder’s register.
- Weighted Average: It can also be worked out as a weighted average of the number of equity shares outstanding throughout the year.
EPS calculated with the first option will present earnings per share for the shareholders existing at the point of financial year closing. On the other hand, the second option will give a true picture for analysis about the company.
There is a third possibility of changes in equity shares outstanding because of the existence of convertible debentures or preference shares. When the EPS is calculated considering the effect of the conversion of such convertibles into equity shareholders, it is known as Diluted EPS. We have kept it out of the scope of this calculator.
Interpretation of EPS
EPS is as good as earnings and hence higher it is the better it is for the company as well as shareholders. From an investor angle, it is important to calculate this metric. Earnings in value terms is vague to understand but per share value gives a fair indication to the investor and he can quickly calculate his return on investment.
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