Earnings Per Share - EPS

Earnings Per Share is calculated the Net profits of a company divided by the number of outstanding shares.

Earnings Per Share is the single most accepted variable in dictating a share's price. EPS indicates the profitability of a company.

how much of the company's earnings belongs to each share of stock. If company ABC reported income of Rs.100000 and had 20000 shares outstanding, the basic EPS would be Rs. 5 (Rs. 100000 earnings ÷ 20000 shares outstanding = Rs.5 per share). The figure is significant because it allows analysts to assessment the stock based on the price to earnings ratio .

Net revenues-Dividends on preferred stock
= -----------------------------------------------
Average outstanding shares

Case Study; Companies often release some versions of earnings per share to the investment community. In October 2001 telecommunications company Convergys Corporation, a 1998 spin-off from Cincinnati Bell, announced its third-quarter operating earnings rose 12% to 31¢ per share from the prior year's 27¢ per share. At the same time the firm announced that cash earnings per share, not including goodwill amortization and special items, increased 13%, to 35¢ from 31¢ during the year prior period. However, earnings per share calculated according to commonly accepted accounting principles specified by the Financial Accounting Standards Board were reported as 2¢ per share, down over 90% from 27¢ per share a year before. The shareholders' quandary is determining which calculate of earnings per share most accurately represents the company's performance. Companies would like you to focus on the earnings report that is most positive to the company and its management. In this instance investors must have considered operating income the most significant measure of the firm's performance because Convergys stock closed up $1.80 at $28.00. A month later the stock was trading in the low 30s,

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