Earnings Per Share - EPS

Earnings per share is a major component used in determining the PE Ratio for a company. The "E" in "PE", known as the "Earnings Per Share" component, or "EPS".

In the most basic form, the EPS is calculated by taking the Net Income and divide it by the number of outstanding shares.

Looking into this further, be aware that you may come across variations such as a Trailing EPS, Current EPS or Forward EPS.

All of these are still Earnings Per Share calculations, they differ by the period in which the earnings data is used in each of the calculations.

You should also be aware that the number of outstanding shares may include different classes of stock such as common stock and preferred stock. For this reason, as well as if and when any dividends are included in the calculation, you will see the number of outstanding shares calculated as the "Weighted Average" of the number of outstanding shares.

Earnings Per Share

Here's a quick basic example of calculating an EPS: The XYZ Zipper Company reported net income of $1,000,000 and has 100,000 shares of stock outstanding. $1,000,000 divided by 100,000 shares equals Earnings Per Share of $10.00.

Looking at this number, can you determine if the stock is a good buy at the current price level? Possibly, but using this one piece of data alone would probably not be a good idea.

What about the estimates for future earnings? New products coming out, or the lack of? Competition? You get the hint. There can be many variables to consider so using one piece of data by itself is usually not a good idea.

Luckily, we don't have to perform these calculations on our own if we don't want. You can find a resource that provides financial statistics for you, read over financial statements and/or analysts reports for individual stocks.

A great place to get financial information, both historical and estimates is by using a service like this: Morningstar Investment Research: Free Online Trial. 4,000 In-Depth Reports, Ratings. Data on 20,000+ Stocks and Funds.. They have both a free and a premium service that has plenty of useful information for doing all types of analysis.

In addition as mentioned above, you can look up statistics on sites such as Yahoo Finance, Google Finance or get copies of Analyst reports through you online broker in many cases.






Related Earnings Per Share (EPS) Pages on This Site:

Return From "(EPS) Earnings Per Share" To "Fundamental Analysis"


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