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


    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.

Top 25 Dividend Stocks To Consider

People prefer a dividend stock in their portfolio as it possesses the feature of compounding. Compounding means that the earning which is generated through these dividend stock will get reinvested and will eventually create earnings from earning. More precisely, the dividend generated from these dividend stock will get reinvested to buy another set of a share of the dividend stock which results in giving a higher dividend.

Click here to download your top 25 dividend stocks report!

6 Cannabis Stocks under Investor’s Limelight…

Cannabis companies that sell both medicinal weed and recreational pot. Marijuana stocks to look at. Marijuana mergers and acquisitions. Dispensary data analytics. Upcoming marijuana IPO’s Those phrases have become increasingly common as marijuana legalization spreads.

Global spending on legal cannabis is expected to grow 230% to $32 billion in 2020 as compared to $9.5 in 2017, according to Arcview Market Research and BDS Analytics. As of June 29, 2018 the United States Marijuana Index, despite a lot of uncertainty around regulations, has over the past 1 year gained 71.49%, as compared to about 12% gain seen by the S&P 500.

Click here for your FREE Report


Please enter your comment!
Please enter your name here