EPS is a measure of how much profit a company has generated. It is calculated by dividing the company’s profit with its total number of outstanding shares. The higher a company’s EPS, the more profitable it is considered.
EPS Formula:
The earnings per share value are calculated as the net income subtracting preferred dividends and divided by the available shares. Some data sources simplify the calculation by using the number of shares outstanding at the end of a period.
EPS = (net income – preferred stock dividends) ÷ (outstanding shares)
Why EPS Is Important
The earnings per share metrics are one of the most important variables in determining a share’s price. EPS is one of the many indicators you could use to pick stocks. If you have an interest in stock trading or investing, your next step is to choose a broker or stock market app that works for your investment style.
Analysis
EPS can be distorted, both intentionally and unintentionally by several factors. Analysts use variations fo the basic EPS formula to avoid the most common ways that EPS may be inflated.
Source: Investopedia.com
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