EPS Calculator

What is EPS - Earnings per Share?

EPS is an economic ratio that examines the profit of a company allocated to every outstanding share of its common stock. It measures earnings performance that is available to investors. Suppose, for instance, that a company earns $10 million and has outstanding shares of 5 million. The Earing Per Share would therefore be $2. Generally, the higher the value of a firm's EPS, the better the level of profitability and shareholder value.

How to Calculate EPS - Earnings per Share?

The formula for calculating EPS is to divide net income available to common shareholders by the weighted average number of shares outstanding during the period. Example: for a company earning $8 million with 4 million shares, the EPS is $8 million ÷ 4 million = $2 per share. EPS works to further help investors assess a firm's overall health as well as compare it to its closest competitors.

EPS - Earnings per Share Formula

The formula for EPS is:

• EPS = (Net Income - Preferred Dividends) / Weighted Average Shares Outstanding.
• For instance, if a company's net income is $20 million, preferred dividends are $2 million, and it has 9 million weighted average shares, EPS = ($20M - $2M) ÷ 9M = $2. EPS provides a per-share view of profitability.

Shareholder Equity

It gives the residual interest in the company's assets after deducting its liabilities. It is calculated by adding:

• Equity = Total Assets - Total Liabilities.
• For example, a company with $50 million in assets and $30 million in liabilities would have shareholder equity of $20 million. It indicates the net worth of a business from its owners' point of view and is one of the critical items in financial analysis.

Price-to-Earnings (P/E) Ratio

The Price-to-Earnings ratio reflects the proportion of a company's current stock price relative to its earnings per share and defines how much an investor is willing to pay to receive $1 in earnings. The formula is:

• P/E = Stock Price ÷ EPS.
• For instance, when the price of the stock is at $50 and the value of EPS is $5, then the P/E ratio will be 10. A high P/E indicates growth expectations and a low P/E ratio may show undervaluation or low growth.

Diluted EPS

Diluted EPS represents the potential dilution of earnings from convertible securities, such as options or warrants. It is determined by dividing adjusted net income into total diluted shares. For instance, if the net income is $10 million, while the diluted shares amount to 6 million, then the diluted EPS = $10M ÷ 6M = $1.67. This is a conservative look at earnings.

Basic EPS

Basic EPS is calculated using net income and the weighted average number of shares outstanding without considering dilution. For example, a company earns $15 million with 5 million shares: Basic EPS = $15M ÷ 5M = $3. The Basic EPS gives a simple look at the earnings per share for the existing shareholders.

Weighted Average Shares

Weighted average shares represent the average number of shares outstanding over a reporting period, adjusted for stock issuances or buybacks. For example, if a company starts with 10 million shares, and issues 2 million more halfway through the year, the weighted average is 11 million shares. This calculation ensures EPS reflects equity changes accurately.

Profit Margin

Profit margin expresses the profitability of a firm as a percent of revenue. The formula is:

• Profit Margin = (Net Income ÷ Revenue) × 100.
• For example, if net income is $5 million and revenues are $25 million, the profit margin is ($5M ÷ $25M) × 100 = 20%. The higher the margin, the more efficient and profitable a company is.

Revenue

Revenue refers to the total income derived from the sale of goods or services before the deduction of expenses. It is usually called the "top line." Suppose a firm sells 10,000 units at $50 each; revenue will be 10,000 × $50 = $500,000. It is considered a key measure of the performance of a company and of market demand for a product.

Return on Equity (ROE)

Return on Equity (ROE) relates to the net income generated by a company with the equity provided by the shareholders. The formula is:

• ROE = Net Income ÷ Shareholders' Equity.
• Example: If net income is $2 million, and equity is $10 million, ROE is $2M ÷ $10M = 20%. A higher ROE indicates efficient use of equity investments.

Cash Flow per Share

Cash Flow per Share represents the cash a company generates per outstanding share. It is computed as follows : Cash Flow per Share = Operating Cash Flow ÷ Outstanding Shares. For instance, if the operating cash flow is $5 million and there are 2 million shares, the cash flow per share is $2.50. This metric shows a company's ability to generate cash for reinvestment or distribution.

Dividend Payout Ratio

The dividend payout ratio measures what percentage of earnings are paid out to the shareholders in the form of dividends. The formula is: Dividend Payout Ratio = Dividends ÷ Net Income. For instance, if the dividends are $1 million and the net income is $4 million, the payout ratio is ($1M ÷ $4M) × 100 = 25%. It reflects the balance between rewarding shareholders and retaining earnings.

EPS Growth Rate

The EPS Growth Rate refers to the annualized percentage growth in a company's earnings per share over some period. It reflects the company's capability of improving profitability for the shareholders. The formula is:

• EPS Growth Rate = ((Current EPS - Previous EPS) ÷ Previous EPS) × 100.
• For instance, if EPS increases from $2 to $3 within a year, then the rate of growth is (($3-$2) ÷ $2) × 100 = 50%. The higher the growth rate of EPS, the better the financial performance and investor confidence, and hence it is one of the most important factors in stock valuation and competitive analysis.

Earning Growth

Earnings growth portrays the percentage increase of a company's earnings over some period and reflects profitability trends. For instance, if the net income of a company increases from $2 million to $3 million, earnings growth is (($3M - $2M) ÷ $2M) × 100 = 50%. This metric is key in evaluating a company's potential for future success.