The EPS formula is a measure of “rating” as such in the stock market that is very well respected by stocks market traders and investors alike. It is used mainly to show potential investors how profitable a company has been that financial year, as it refers to the percentage of a company’s shares that is dedicated to each individual outstanding (share that the company itself does not own) share that the company has at that present time.
Throughout this article, we will be looking at what you should make sure that you know about the earnings per share formula, regardless of whether or not you are new just to the formula itself, or to the stock market as a whole! After reading, you should be well informed on the earnings per share formula, the purpose of it including what it is used for, as well as how to use it to gain an idea of the profitability of the company that you are looking at, and finally the different variations of earnings per share (EPS) formula that exist.
It is important to remember that, even before considering the earnings per share formula, that you should consider a number of other points before in investing in a company, as you would before putting any of your own money into anything else in life. The earnings per share does offer a very good indication as to the profitability of an organisation, but it should not be looked at as a guarantee. It should be combined alongside other things that could be affected by your investment and considered as part of all of these. For example, you should ensure first that you can afford to lose the money that you are deciding to invest – this is due to the fact that the company that you are investing in could, technically speaking, declare bankruptcy at any point in time, in which case, you will lose the money that you invested as your holdings will not represent any company. Another good common tip for something to think about when you’re investing your money is the history of the company. Since it is important that you do not simply just look solely at the earnings per share value of the company, this is another good thing that you can look at as it does not require any further stock market knowledge – anyone can read the news! In order to do this, look about and research for any news articles that have been written on the organisation. You should also type the organisation into search engines online, and try to find out as much as you possibly can about them. This could include any previous triumphs that they have had financially, as well as past failures. You should look into information as to why these happenings took place at the time that they did in terms of what sort of state the company was in when they did, and compare the state of the company now and attempt to make predictions on whether or not an investment at this point is a good idea. Of course, all of these are only points that you should consider as well as the earnings per share formula, and are in no way related to the EPS formula itself.
So, what should you know about the earnings per share formula? You should know that the formula is used to calculate how much of a company’s profit is dedicated to each share that they have outstanding. The EPS formula is a very commonly used formula that allows investors to gauge the general performance and potential profitability of a company that they may or may not be considering investing in. An investor might use the EPS formula when they are comparing two companies with one another and deciding which of the two that they would like to invest in. After calculation, should one have a higher earnings per share value than the other, it is normal that this company that came out on top would be selected for the investment. It is paramount to remember that, at this point, the investor has considered a huge number of other factors and is not using solely the earnings per share formula to decide whether or not they would like to invest in the organisation. It is merely another point that they take into consideration.
Another type of EPS is known as a “weighted EPS.” The weighted earnings per share formula is a reflection of how many shares a company has owned over the course of time, and how considerably this number has changed over time. This number could have varied considerably over time, or could indeed have been fairly consistent. The weighted measure is a better one to use as it gives information on what is happening at the current point in time with regard to the number of shares that the company holds, as well as past holdings. This can make a good grounds for analysis, as it can allow you as the investor to compare the current state of the company against previous, and furthermore compare these with the changing values of their stocks over these time periods.
The earnings per share value is calculated by dividing the net income of the company (after tax) by the total number of outstanding shares that the company has at that time. The formula is different however if a weighted version is used – the net dividends of the company must be considered. This net dividends value of the company must be taken away from the net income of the company. This figure is then divided by the total number of the company’s outstanding shares.
The earnings per share formula comes in a few different variations. These are known as ‘Trailing EPS,’ ‘Current EPS,’ as well as ‘Forward EPS.’ Intuitively enough, these refer to the EPS at points before the present point in time, the eps value at the current point in time, as well as the forward EPS which refers to the EPS at a point in the future, based on prediction.