What Do We Mean By Earnings Per Share (EPS)?

  • December 08, 2018 04:55 PM AEDT
  • Team Kalkine
    Team Kalkine
    Team Kalkine
    22316 Posts

    Team Kalkine comprises of experts who understand various markets nuances and are enthusiastic and passionate to provide best possible offerings in the form of insights and stories. The team has rich experience of working across different markets with...

What Do We Mean By Earnings Per Share (EPS)?
  • Understanding the term Earnings per share of the company: Earnings per share (EPS), a relative term also called net income per share, is the amount of money each share of stock would receive after distributing the profits to the outstanding shares at the end of the financial year. Thus, a larger company will have to share its earning amongst many more shares of stock compared to a smaller company. The investors, gauge the profitability of a company before buying its shares, often use this financial tool. The higher the EPS of a company, the better are its profitability as the EPS is directly dependent on the profits of the company. This ratio is extremely useful because it gives the investors a quick look into a company’s earnings growth yoy. This tool also gives the investors a clearer picture of earnings relative to dividends, as these appear on a per share basis. It is to make use of the weighted ratio, while calculating the EPS, as the shares outstanding can change over time. Overall, when a company will be growing its earnings per share, along with rising revenue and profit each year, that company’s share price will eventually rise over time. Generally, an analyst analyzes the growth of earnings per share over five years. They will also compare the EPS of a stock to its peers and the sector average. Earnings per share also reflects the ability to interepret the financial strength of the company.
  • Meanwhile, if the company goes for share buybacks (buying back shares from shareholders), then earnings per share of the stock will rise virtually since it reduces the number of shares on issue.
  • On the other hand, during capital raisings which comprises of issuing of new shares, rights issues, institutional placements, bonus shares and the like, results dilution in equity because the earnings of the company have to be divided by more shares.
  • Additionally, the earnings per share gets the limelight when the company announces their latest earnings report when compared with the company's earlier preliminary announcement of projected earnings. Companies generally gives the projections of the future quarters before hand and if the projected earnings of the analysts’ is less than the company's EPS declared, the financial press exclaim that the company's earnings has "beaten estimates”. This often boosts the share price, at least temporarily. However, if an actual EPS that is below the projected estimate may indicate a company is amidst some trouble and their stock plunges. A company that delays its EPS announcement is usually seen that they are already in trouble.
  • Limitations of earnings per share: In isolation earnings per share does not mean a great deal and can be used as just one component of the investor’s analysis. Further, there are various reasons why a rise or fall in EPS are misleading. A company’s EPS could also be affected due to the economic factors of the country, which is beyond the company’s control and also affects other companies

    Disclaimer

    This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.

 


Disclaimer
The website https://kalkinemedia.com/au is a service of Kalkine Media Pty. Ltd. (Kalkine Media) A.C.N. 629 651 672. The principal purpose of the content on this website is to provide factual information only and does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) or engage in any investment activity under discussion. We are neither licensed nor qualified to provide investment advice through this platform. In providing you with the content on this website, we have not considered your objectives, financial situation or needs. You should make your own enquiries and obtain your own independent advice prior to making any financial decisions.
Some of the images that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed on this website unless stated otherwise. The images that may be used on this website are taken from various sources on the web and are believed to be in public domain. We have used reasonable efforts to accredit the source (public domain/CC0 status) to where it was found and indicated it below the image. The information provided on the website is in good faith, however Kalkine Media does not make any representation or warranty regarding the content, accuracy, or use of the content on the website.

 

   
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK