How To Calculate EPS
Earnings per share is more useful as a comparison between
Hi, my name's Grant Hobson. I've been a finance analyst for the last six years. Today I'm going to run you through some financial performance methods as well as some investment appraisal techniques. To Calculate Earnings Per Share: Earnings Per Share is an entity's net profit attributable to ordinary share holders, divided by the number of ordinary shares in issue. It's generally considered to be the single most important variable in determining a share's price, it's also a major component used to calculate the price to earnings evaluation and ratio. If we consider a simple calculation: so you've got a company's earnings before interest and tax of six hundred and twenty five thousand pounds, we then deduct the interest to get the earnings before tax of four hundred and fifty thousand pounds, less your tax payable, leaving us a net income of three hundred and twenty five thousand pounds. This three hundred and twenty five thousand pounds can be split between shareholders for all the ordinary shares in issues, so if the company were to have a hundred and fifty thousand ordinary shares in issue, we would see that the earnings per share is two hundred and sixteen pence per share. Now, earnings per share is more useful as a tool for comparison between companies. So if we look at the same method of calculation for a company B, using the same financials but a different number of ordinary shareholders, so this company only has seventy thousand ordinary shareholders, this company generates an earnings per share of four hundred and thirty three pence per share- considerably higher than company A, and would therefore be more appealing to an investor.