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Earnings per share

 

 
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Earnings per share
 
 
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Earnings per share (EPS) are the earnings returned on the initial investment amount.

In the US, the Financial Accounting Standards Board
Financial Accounting Standards Board

The Financial Accounting Standards Board is a private, not-for-profit organization whose primary purpose is to develop Generally Accepted Accounting Principles within the United States in the public's interest....
 (FASB) requires companies' income statements to report EPS for each of the major categories of the income statement
Income statement

Income statement, also called profit and loss statement , is a company's financial statement that indicates how the revenue is transformed into the net income ....
: continuing operations, discontinued operations, extraordinary items, and net income
Net income

Net income is equal to the income that a firm has after subtracting costs and expenses from the total revenue. Net income can be distributed among holders of common stock as a dividend or held by the firm as retained earnings....
.

EPS formula does not include preferred dividends for categories outside of continued operations and net income.






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Earnings per share (EPS) are the earnings returned on the initial investment amount.

In the US, the Financial Accounting Standards Board
Financial Accounting Standards Board

The Financial Accounting Standards Board is a private, not-for-profit organization whose primary purpose is to develop Generally Accepted Accounting Principles within the United States in the public's interest....
 (FASB) requires companies' income statements to report EPS for each of the major categories of the income statement
Income statement

Income statement, also called profit and loss statement , is a company's financial statement that indicates how the revenue is transformed into the net income ....
: continuing operations, discontinued operations, extraordinary items, and net income
Net income

Net income is equal to the income that a firm has after subtracting costs and expenses from the total revenue. Net income can be distributed among holders of common stock as a dividend or held by the firm as retained earnings....
.

Calculating EPS

The EPS formula does not include preferred dividends for categories outside of continued operations and net income. Earnings per share for continuing operations and net income are more complicated in that any preferred dividends are removed from net income before calculating EPS. Remember that preferred stock
Preferred stock

Preferred stock, also called preferred shares or preference shares, is typically a 'higher ranking' stock than voting shares, and its terms are negotiated between the corporation and the investor....
 rights have precedence over common stock
Common stock

Common stock is a form of corporation equity ownership represented in the Security . It is a stock whose dividends are based on market fluctuations....
. If preferred dividends total $100,000, then that is money not available to distribute to each share of common stock.

;Earnings Per Share (Basic Formula)


;Earnings Per Share (Net Income Formula)


;Earnings Per Share (Continuing Operations Formula)


Note: Only preferred dividends actually declared in the current year are subtracted. The exception is when preferred shares are cumulative, in which case annual dividends are deducted regardless of whether they have been declared or not. Dividends in arrears are not relevant when calculating EPS.

See also

  • Diluted Earnings Per Share
  • Earnings growth
    Earnings growth

    In investments, earnings growth refers to the annual rate of growth of earnings. When the dividend payout ratio is the same, the dividend growth rate is equal to the earnings growth rate....
  • P/E ratio
    P/E ratio

    The P/E ratio of a stock is a measure of the price paid for a Share relative to the annual net income or profit earned by the firm per share....


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