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Eps,Earnings Per Share
EPS stands for earnings per share, which is a company’s net income divided by the number of common shares outstanding. It is a key metric used to measure a company’s profitability and to compare different companies’ performance.
Formula:
EPS = Net Income / Number of Common Shares Outstanding
Key factors affecting EPS:
- Company’s profitability: Companies with higher profitability will have higher EPS.
- Number of common shares outstanding: Companies with a larger number of shares will have lower EPS.
- Dividends: Companies that pay dividends will reduce their EPS by the amount of the dividend paid per share.
- Accounting methods: Different accounting methods can affect EPS. For example, depreciation methods can affect earnings per share.
- Industry norms: Different industries have different average EPS levels.
Uses of EPS:
- Company comparison: Investors compare EPS of different companies to assess their relative performance.
- Stock valuation: EPS is used as a factor in determining the price of a company’s stock.
- Forecasting: Investors use EPS projections to forecast future company performance.
Important notes:
- EPS is a non-cash flow metric, so it does not include changes in working capital or long-term investments.
- EPS can be adjusted for certain items, such as extraordinary items or non-operating income.
- It is important to compare EPS figures for companies in the same industry or with similar business models.
Additional metrics:
- Diluted EPS: This is EPS adjusted for the dilutive effect of convertible securities.
- Adjusted EPS: This is EPS excluding certain items, such as extraordinary items or non-operating income.
- EPS growth: This is the percentage change in EPS between two periods.