Earnings Per Share Calculator

If you invest in the stock market, you likely own a significant number of shares. Using this earnings-per-share calculator, you can quickly determine their true value in just a few steps. This tool will guide you on how to calculate earnings per share and give you a reliable EPS formula that you can trust.

What is EPS?

Earnings per share (EPS) is measured by dividing a company’s net profit by the total number of its outstanding common shares.

In essence, the EPS ratio measures the net income attributable to a company’s common shareholders, calculated on a per-share basis and after taking into account any preferred dividend payments.

How to Calculate Earnings Per Share (EPS)

Earnings per share, commonly called “EPS,” measures how much of a company’s net profit is allocated to each share of common stock outstanding.

A company’s net earnings for a given period – known as net income (“bottom line”) – can either be reinvested in the business or paid out as dividends to common shareholders.

Retained earnings, shown on the balance sheet, are calculated by taking the balance from the previous period, adding the current period’s net income, and then subtracting any dividends paid to common and preferred shareholders.

Ultimately, management and the board of directors decide how to allocate net earnings with the goal of maximizing shareholder value.

The income statement typically shows two types of earnings per share (EPS):

• Basic earnings per share (EPS) → Basic EPS shows a company’s net income divided by each outstanding common share.
• Diluted earnings per share (EPS) → Diluted EPS shows net income per common share after factoring in potentially dilutive securities such as stock options, warrants, or convertible instruments.

Earnings Per Share Formula

There are various methods for determining earnings per share.

Below are two common formulas for calculating earnings per share:

• EPS = (Net income – Preferred dividends) / Shares outstanding at the end of the period
• EPS = (Net income – Preferred dividends) / Weighted average shares outstanding

The first formula uses the total shares outstanding to find EPS. However, in practice, analysts often prefer to use the weighted average shares outstanding for the denominator. Because the number of shares can change during a period, analysts sometimes use the shares outstanding at the end of the previous period.

Financial statements often also report diluted EPS. Diluted EPS accounts for options, convertible securities, and warrants, which, when exercised, can increase the total shares outstanding.

The second version is adjusted EPS. This method excludes all non-core gains and losses, including minority interests. It focuses only on the profit or loss from core operations on a general basis.

Example of an Earnings Per Share Formula

ABC Limited reports net income of $1 million for the third quarter. The company declares a dividend of $250,000. The total shares outstanding are 11,000,000.

The EPS for ABC Limited would be:

• EPS = ($1,000,000 – $250,000) / 11,000,000
• EPS = $0.068

Each share represents an equal portion of net income, so each share would receive $0.068.

Types of Earnings Per Share (EPS)

EPS comes in different forms, and each type highlights a different aspect of this financial metric. This is because, depending on which EPS is considered, a company’s stock can appear either undervalued or overvalued.

Generally, EPS is categorized into three main types –

• Past EPS: It uses only the previous year’s data.
• Current EPS: It is based primarily on current numbers and available data.
• Forward EPS: It is based on expected future estimates and projections.

Importance of Earnings Per Share

The following points explain why earnings per share is important in assessing a company’s profitability and financial health –

• It helps investors understand whether investing money in a company can yield a higher return. Simply put, a high EPS indicates a strong profit position, indicating that the company can increase its dividend payout in the future.
• It also allows for the comparison of the performance of various promising companies, making it easier to choose the best investment option.
• Furthermore, by using EPS along with other financial tools, investors can estimate the current and future stock value of a company.
• EPS also helps in assessing whether the price of a stock is fair based on its market performance. For example, investors use the price-earnings ratio, where ‘E’ represents earnings calculated by the EPS formula, to make such an assessment.
• EPS not only reflects the current financial position of a company but also tracks its past performance.
• For example, a company that shows consistent EPS growth is often viewed as a reliable investment. On the other hand, companies whose EPS fluctuates or declines are generally avoided by experienced investors.