Earnings per Share (EPS) Calculator

Calculate the portion of a company's profit allocation to each share of common stock. Earnings per share serve provide visability of a specific company's profitability.

Earnings per Share (EPS) Calculator
Net Income
Preferred Dividends
# of Shares Outstanding
Earnings per Share (EPS) Results
Earnings per Share (EPS):
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Earnings Per Share Calculator. This image shows a man learning how to calculate earnings per share using a calculator and notepad. By using the earnings per share formula, the EPS Calculator provides a true calculation of company's profit allocation to each share of common stock.

Earnings Per Share (EPS): An indicator of a company's profitability

The earnings per share (EPS) is one of the most useful metrics in assessing a company's profitability. A company's profit divided by the outstanding shares of its common stock defines EPS. You can use the formula given below to calculate EPS:

EPS = (n - p) / c

Where:

  • EPS = Earnings per share
  • n = Net income
  • p = Preferred dividends
  • c = Common share outstanding

The information required to calculate EPS can be fetched from a company's income statements and balance sheet.

Calculating Earnings Per Share on the EPS Calculator

Considering the design of the EPS Calculator at iCalculator, you must have the three key values to start using it and know your company's profitability, these are.

  1. Net Income: Net income of net earnings are calculated as Sales minus the cost of goods sold, expenses on operating and administration, depreciation, interest, taxes and other expenses.
  2. Preferred Dividends: These dividends are paid on company's preferred stock. Preferred shareholders have priority over common shareholders and get higher claims on distributions of these dividends.
  3. Number of shares outstanding: This defines company's stock currently held by all its shareholders. This includes the shares that are owned by institutional investors as well as insiders that own the restricted stock of the company.

Based on the input, the calculator will provide you with the EPS figure after completing the calculation using the above-mentioned formula.

Significance of EPS

Earnings per share is a very important measure to assess a company's financial health. It is also a major component in calculating the price to earnings (PE) valuation ratio. Where, the E in PE refers to EPS. This ratio relates a company's share price to its earnings per share.

EPS is also useful when you are interested in trading in the share market. This is one of the many indicators you can use to pick a stock. Here, investors can compare EPS with the share price of a company to identify the value of earning as well as to predict future growth of a stock.

Impacts of EPS

EPS is used to show how much money a company makes for each share of its stock. A higher EPS is an indicator of more value as it means the company is making profits. Investors will pay more for a company with higher profits. Let's take a look at some of the impacts of EPS.

EPS and Dividends

Dividends are the portion of a company's profit that is distributed to its shareholders. Although, it is solely at the discretion of a company's management to distribute the dividends, these are calculated on the basis of EPS.

EPS and Price to Earning Ratio

The valuation metric price to earnings ratio uses EPS as its main component. The basic calculations are done by dividing stock price by EPS. This is also an important measure to assess a company's profitability.

Limitations and drawbacks of using EPS

Despite the widespread use, the metric of EPS has some drawbacks when used as a primary measure of a company's performance. Let's take a look at those shortcomings:

  • EPS does not take a company's debt position and financial investments into account, whereas this is an important factor for the potential investors.
  • EPS can be affected by changes in a company's accounting policies. In this case, the EPS will change regardless of any real financial changes.
  • The growth percentage shown by EPS can be misleading when based on small base or negative earnings from a previous period.
  • EPS will be distorted when a company conducts a share buyback. This will result in an automatic reduction in a company's share thus inflating the EPS figures.
  • EPS can be distorted by mergers. This happens because regardless of actual value created, a deal will have more gradual earning if the acquirer company has higher EPS than the target company.
  • The EPS method uses values that have a lot of discretion when deciding what is and what isn't exceptional, so the figures are open to manipulation.

Conclusion

Given the limitations of the EPS method, it is advisable that this method should not be used in isolation. Nonetheless, EPS is one of the most important ways to measure a company's profitability. Investors looking to buy stocks should take advantage of using this method and the EPS calculator.