What is EPS Meaning: Earning Per Share? : EPS Formula, Ex
Any company can have thousands to millions of shares, and the amount of profit earned on each share is referred to as Earnings Per Share.
EPS assists in determining how a business is performing. When a business operates, it generates profit, and Earnings Per Share is used to determine the amount of profit generated by a single share of the business.
EPS Calculation: How is Earning Per Share calculated ?
To calculate the EPS of any company, you need to know about two things of that company.
- What is the net profit of that company.
- What is the total share of the company.
EPS Formula : Earning Per Share Calculate Formula.
EPS Formula = Total Net Profit (Total Net Profit) / Total Number of Share (Total Number of Shares)
When the company’s quarter ( Quarter ) or annual net profit comes out (Net Profit) in the company’s EPS, the company is given the total shares (Shares) part of (Earning Per Share).
Basic formula
- Earnings per share = profit − preferred dividends/weighted average common shares
Net income formula
- Earnings per share = net income − preferred dividends/average common shares
Continuing operations formula
- Earnings per share = income from continuing operations − preferred dividends/weighted average common shares
U.S. GAAP
Calculations of diluted EPS under U.S. GAAP are described under Statement No. 128 of the Financial Accounting Standards Board (FAS No. 128). The objective of diluted EPS is to measure the performance of a company over the reporting period taking into account the dilutive effect of potential common stock that could be issued by the company. To compute diluted EPS, both the denominator (outstanding shares) and the numerator (earnings) may need to be adjusted.
Diluted shares:
To calculate the total number of shares used in the calculation, FASB prescribes using the treasury method to calculate the dilutive effect of any instruments that could result in the issuance of shares, including:
- Stock options
- Warrants
- Convertible preferred stock
- Convertible bonds
- Share-based payment arrangements
- Written put options
- Contingently issuable shares
Earnings:
The numerator used in calculating diluted EPS is adjusted to take into account the impact that the conversion of any securities would have on earnings. For example, interest would be added back to earnings to reflect the conversion of any outstanding convertible bonds, preferred dividends would be added back to reflect the conversion of convertible preferred stock, and any impact of these changes on other financial items, such as royalties and taxes, would also be adjusted
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