What Is Earnings Per Share (EPS) ?

In This Article

Earnings Per Share

View

Where to find the data?

Pros & Cons of the Earning Per Share (EPS)

-Pros of the P/E ratio

-Cons of the P/E ratio


Earnings Per Share

In simple terms, residual income is available to each shareholder. This gauges the health of the companies financials.

Basic Earning Per Share (EPS)

This is input for calculating price to earnings ratio; in general, this ratio is subdivided into three to make a better decision. 1. Trailing EPS: It is based on the previous year’s earnings. 2. Current EPS: Based on the current projections and available earnings. 3. Forward EPS: Depends on anticipated future projections.


View:-

Higher the better, Should the trend relative to peers and industry.


Where to find the data?

In the Profit and Loss Statement in the end, after profit available to common equity holders


Pros & Cons of the Earning Per Share (EPS) :-

There are many pros and cons of the Earnings Per Share (EPS), here are some of them.


Pros of the P/E ratio:-

  • It Drives Stock Prices. If a company records strong earnings for a quarter, it is an indicator that stock prices might increase. If the earnings are decrease, this is an indication of decreasing stock prices.

  • EPS measuring a company’s Profitability. When it comes to fundamental analysis, this is the only metric that isolates a company’s net income to reveal what shareholders are earning by investing in the company. In simply companies are usually in the market to business make profits, and investors put their money in companies to enjoy part of the profits.

Cons of the P/E ratio:-

  • Companies can easily manipulate their earnings per share by reducing the number of outstanding shares.

  • EPS does not capture a company’s performance since it fails to consider the price of a share.

  • Buy Back shares or reversing the splitting of stocks. Both of these activities can reduce the number of shares outstanding, it resulting in higher Earnings Per Share. This drives the EPS up without any actual increase in earnings