What is Earning Per Share (EPS) in Share Market?

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What is Earning Per Share (EPS) in Share Market?

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To make out a company’s profitability and potential returns, earning per share is an important financial measure. If the EPS is high, it signifies good profit-making potential for investors and efficient use of investor funds by the company. On the other hand, if the EPS is low, it may suggest low or no profit-making potential and inefficient use of investor’s money by the company. 

In this blog post, we’ll explain what is earning per share and the formula using which EPS can be calculated.

Eearning Per Share (EPS)

EPS full form is Earning Per Share. EPS can be defined as a measure of a company’s profitability per share. It is commonly used by investors and analysts as an indicator of the financial performance of a company. 

Higher EPS means more profit is associated with each share, and hence, the share is viewed as more valuable and attractive by the investors. By using EPS, investors and analysts can monitor changes in a company’s profitability over time. They can also use EPS to compare one company’s profitability with another company’s profitability. This enables them to make informed investment decisions.

EPS Formula

Now, let’s check out the EPS formula. If you are a SEBI Registered Research Analyst or an Investor, this formula can be especially useful for you.

The EPS formula is:

EPS = (Net Income – Preferred Dividends) / Weighted Average Shares Outstanding

Net Income: It refers to the company’s total profit after all expenses. 

Preferred Dividends: It refer to any dividends paid to preferred shareholders. 

Weighted Average Shares Outstanding: It refers to the average number of shares outstanding during a specific period which is usually a quarter or year.

EPS Example

Let’s take an example to understand EPS. Let’s say that XYZ Ltd. company has the following:

  1. Net income in the third quarter: $1 million
  2. Dividends announced: $250,000
  3. Total shares outstanding: 11,000,000

EPS of XYZ Ltd. company can be calculated in the following manner:

EPS=11,000,000($1,000,000−$250,000)​=$0.068

This means that, according to the earning  per share formula, each share of XYZ Ltd. would receive approx. $0.068 of net income.

Also Learn : How to become a sebi registered research analyst?

Conclusion

Earning per share is an important financial measure that determines the value of a given company and its stock. EPS in share market allows individuals to make informed investment decisions. Both SEBI research analysts and investors can use the EPS formula to check a company’s profitability. 

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