Earnings Per Share (EPS)
Updated on March 3, 2023
Earnings per share or EPS is a measure for assessing the profitability of a company. EPS is the value of earnings per outstanding shares of a company. It shows the company’s profitability by displaying the money made per share. EPS is achieved by dividing a company’s net profit by the number of its shares outstanding. A company with high EPS is considered more profitable than a company with low EPS.
Updated EPS of a company can be checked every quarter and also through annual results.
EPS = Net Income (after Tax)/Total Number of shares outstanding
Importance of EPS
Importance of EPS:
1. EPS helps in comparing different companies from the same industry to pick the better investment option.
2. EPS is an important metric to gauge a company’s present and anticipated future value.
3. EPS is used in financial ratios, such as the P/E ratio to understand a company’s value.
Limitations of EPS
Limitations of EPS are:
1. EPS can be manipulated by certain businesses to show more profits.
2. Cash Flow is not used for EPS calculation and thus it does not show the accurate solvency picture.