1. What is Earnings Per Share (EPS)?

Earnings Per Share (EPS) is a key financial metric that measures the portion of a company's profit allocated to each outstanding share of common stock. It indicates a company's profitability and is widely used by investors to evaluate stock performance.

2. How Does the Calculator Work?

The calculator uses the basic EPS formula:

Where:

• \( Net\ Income \) — Company's total earnings after all expenses and taxes
• \( Preferred\ Dividends \) — Dividends paid to preferred shareholders
• \( Shares\ Outstanding \) — Total number of common shares issued and outstanding

Explanation: The formula calculates how much profit each common share would receive if all profits were distributed. Preferred dividends are subtracted first because preferred shareholders have priority over common shareholders.

3. Importance of EPS Calculation

Details: EPS is one of the most important metrics for stock valuation. It helps investors compare profitability across companies and track a company's performance over time. Higher EPS generally indicates better financial health and often leads to higher stock prices.

4. Using the Calculator

Tips: Enter net income and preferred dividends in dollars, and shares outstanding as a whole number. Ensure all values are positive, with shares outstanding greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between basic EPS and diluted EPS?
A: Basic EPS uses the current number of outstanding shares, while diluted EPS includes potential shares from convertible securities, options, and warrants, providing a more conservative estimate.

Q2: What is considered a good EPS?
A: A good EPS depends on the industry and company size. Generally, higher EPS is better, but it should be evaluated in context with other financial metrics and compared to industry peers.

Q3: Why subtract preferred dividends?
A: Preferred dividends are subtracted because they represent earnings that must be paid to preferred shareholders before any earnings can be allocated to common shareholders.

Q4: Can EPS be negative?
A: Yes, if a company reports a net loss (negative net income), the EPS will be negative, indicating the company is unprofitable.

Q5: How often should EPS be calculated?
A: EPS is typically calculated quarterly and annually when companies report their financial results. Investors should track both quarterly and trailing twelve months (TTM) EPS.