Earnings Per Share (EPS)
Explanation: Earnings per share (EPS) is a financial metric that indicates the profitability of a company. It is calculated by dividing the company’s net income by the number of outstanding shares. EPS is a key indicator of a company’s financial health and is widely used by investors to gauge profitability and compare performance with other companies.
Example: A company reports a net income of $1 million and has 1 million shares outstanding. The EPS is $1 ($1 million / 1 million shares), meaning the company earned $1 per share.
Reference Link: For more information on EPS, visit Investopedia’s EPS.
FAQs:
- Why is EPS important for investors?
- It provides a measure of a company’s profitability and is used to compare performance across companies and industries.
- What is the difference between basic and diluted EPS?
- Basic EPS is calculated using outstanding shares, while diluted EPS accounts for potential shares from stock options, warrants, and convertible securities.
- How can a company increase its EPS?
- By increasing net income, buying back shares, or reducing expenses.
- What is a good EPS value?
- It varies by industry and company size, but higher EPS generally indicates better profitability.
- Can EPS be negative?
- Yes, negative EPS indicates that a company incurred a net loss during the reporting period.