How to Find and Calculate Earnings Per Share

Earnings Per Share (EPS) represents a company’s profit allocated to each outstanding share of its common stock. This metric provides a clear view of how much money a company generates for each share, making it a widely used indicator of corporate profitability. Investors often rely on EPS to assess a company’s financial performance, understand its value, and compare it against other companies in the market. A higher EPS generally suggests greater profitability, which can attract more investment and potentially influence stock prices.

Key Data Points and Their Sources

Calculating Earnings Per Share requires identifying specific financial figures found within a company’s publicly available financial statements. The primary components are Net Income, Preferred Dividends, and the Weighted Average Common Shares Outstanding. These figures provide the foundation for determining a company’s per-share profitability.

Net Income, often referred to as the “bottom line,” represents the company’s total profit after all expenses, including operating costs, interest, and taxes, have been deducted from its revenue. This figure is found at the end of a company’s Income Statement. Companies report net income on both a quarterly and annual basis.

Preferred Dividends are payments made to preferred shareholders and must be accounted for before calculating earnings available to common shareholders. Preferred stock dividends reduce the amount of profit that remains for common stockholders. Information regarding preferred dividends can be located in the footnotes to the financial statements, the Statement of Changes in Equity, or sometimes directly on the Income Statement itself.

The Weighted Average Common Shares Outstanding (WACSO) represents the average number of common shares in circulation throughout a specific reporting period, adjusted for any shares issued or repurchased. Using a weighted average is important because the number of shares can fluctuate throughout the year. This figure is reported directly on the Income Statement, usually below the Net Income, or detailed in the footnotes to the financial statements.

Step-by-Step Basic EPS Calculation

Once the necessary data points are gathered, the calculation of basic Earnings Per Share isolates the portion of a company’s profit attributable to each common share. Investors use this metric to understand how much profit the company has generated for every share of common stock.

The formula for basic EPS is: (Net Income – Preferred Dividends) / Weighted Average Common Shares Outstanding. This formula ensures that only the earnings available to common shareholders are considered. Preferred dividends are subtracted from net income because these payments are made before any earnings are available to common stockholders.

For example, consider a company that reported a Net Income of $5,000,000 for the year. During the same period, it paid $500,000 in Preferred Dividends. The company’s Weighted Average Common Shares Outstanding for the year was 2,000,000 shares. To calculate the EPS, first subtract the preferred dividends from the net income: $5,000,000 – $500,000 = $4,500,000.

Next, divide this result by the weighted average common shares outstanding: $4,500,000 / 2,000,000 shares = $2.25. Therefore, this company’s basic Earnings Per Share for the year is $2.25. This means that for every share of common stock, the company generated $2.25 in profit.

Understanding Diluted EPS

While basic EPS provides an understanding of profitability, Diluted EPS offers a more conservative view by considering all potential common shares that could be created. This metric accounts for the impact of convertible securities, such as stock options, convertible bonds, and convertible preferred shares, which could increase the total number of common shares outstanding in the future.

Diluted EPS is reported to provide a comprehensive picture of a company’s earnings power, assuming that all such convertible instruments are exercised and converted into common stock. This calculation results in a lower or equal EPS compared to the basic EPS, reflecting the potential “dilution” of earnings across a larger number of shares. Publicly traded companies are required to report both basic and diluted EPS in their financial statements.