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Basic Earnings Per Share (EPS)

Candlefocus Editor
Basic EPS, also known as “EPS” for short, is used to measure the profitability of a company. It measures how much a company generates in earnings for every share of common stock it has issued. It is the portion of a company's net income or profit that is attributed to each outstanding share of common stock. EPS can be calculated by dividing a company's net income by the number of outstanding shares of common stock. Therefore, a higher EPS figure indicates that a company's net income has grown over time, while a lower EPS figure implies that a company's net income has been decreasing.

Key metrics used to evaluate companies are earnings per share (EPS) and dividend per share (DPS). EPS is the portion of a company’s net income or profit that is attributed to each outstanding share of common stock. EPS can be calculated by dividing a company’s net income by the number of its outstanding shares of common stock. It can also be calculated by subtracting preferred dividends from net earnings and dividing that sum by the number of outstanding shares of common stock.

Basic EPS is the most basic form of EPS and often serves as a starting point for other calculations related to EPS. It is used to measure a company's profitability and to compare companies' profitability trends over time. It does not take into consideration the dilutive effects of items such as stock options, convertible debt or other common stock equivalents, which may significantly reduce the number of common shares outstanding and, consequently, EPS.

In order to account for the dilutive effect of these stock-based items, companies are required to calculate and report diluted earnings per share (also known as diluted EPS). Diluted EPS represents a more accurate measure of a company's total net income because it takes into account the effect of all potential dilutive securities. Diluted EPS is calculated by dividing a company's net income by the number of shares outstanding after taking into account the dilutive effects of all dilutive securities.

Overall, Basic Earnings Per Share (EPS) is an important financial figure which represents the portion of a company's net income that is attributed to each outstanding share of common stock. It can be calculated by subtracting preferred dividends from net earnings and dividing that sum by the number of outstanding shares of common stock and the dilutive effects of all dilutive securities. It is a useful figure for calculation of profitability and to monitor the profitability trend of companies.

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