Financial modelling terms explained

Earnings Per Share

Earnings per share, often referred to as EPS, is one of the most popular financial metrics for indicating how profitable a company is. It can be calculated by dividing the company's net earnings by its total shares outstanding.

What Is Earnings Per Share?

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. EPS is calculated by dividing a company's net income by the number of shares outstanding. This number tells investors how much of a company's profit is being allocated to each share of common stock. A higher EPS indicates that the company is more profitable and that each share is worth more. EPS is also a key metric used in valuation models.

How Do You Calculate Earnings Per Share?

Earnings per share (EPS) is a financial ratio that measures a company's profit per share. EPS is calculated by dividing a company's net income by the number of shares outstanding.

The calculation can be simplified by using the following equation:

EPS = (Net Income - Preferred Dividends) / (Weighted Average Number of Shares Outstanding)

Where:

Net Income is the company's total income minus preferred dividends Weighted Average Number of Shares Outstanding is the average number of shares outstanding over a period of time

What Are the Different Types of Earnings Per Share?

There are three types of EPS: Basic EPS, Diluted EPS, and Adjusted EPS. Basic EPS is calculated by dividing a company's net income by the weighted average number of shares outstanding during the period. Diluted EPS is calculated by dividing a company's net income by the weighted average number of shares outstanding during the period, plus the potential dilutive shares from outstanding stock options and warrants. Adjusted EPS is calculated by adjusting net income for certain items, such as discontinued operations, extraordinary items, and the impact of changes in tax laws.

How Do You Calculate Earnings Per Share for a Company that Has a Negative Net Income?

Earnings per share (EPS) is calculated by dividing a company's net income (profit) by the number of shares of common stock outstanding. If a company has a negative net income, then its EPS will be negative. To calculate EPS for a company with a negative net income, you would first need to calculate the company's net income (profit) by subtracting its total expenses from its total revenue. You would then divide this number by the number of shares of common stock outstanding.

What's the Difference Between Earnings Per Share and Earnings Per Share, Diluted?

Earnings per share (EPS) is a financial metric used to measure a company's profitability. It is calculated by dividing a company's net income by the number of shares outstanding. EPS is generally reported on a per-share basis, meaning that the calculation excludes the effects of dilution from the issuance of stock options, convertible securities, and other dilutive securities.

Earnings per share, diluted (EPS, diluted) is a financial metric used to measure a company's profitability. It is calculated by dividing a company's net income by the number of shares outstanding, including the effects of dilution from the issuance of stock options, convertible securities, and other dilutive securities.

The main difference between EPS and EPS, diluted is that EPS, diluted includes the effects of dilution from the issuance of stock options, convertible securities, and other dilutive securities. Dilution occurs when new shares are issued and the ownership percentage of existing shareholders is reduced. Dilutive securities are securities that have the potential to increase the number of shares outstanding and dilute the ownership percentage of existing shareholders.

The inclusion of dilutive securities in EPS, diluted gives a more accurate measure of a company's profitability because it takes into account the potential impact of these securities on the number of shares outstanding. EPS, diluted is generally used when assessing a company's earnings per share performance relative to previous periods or to the performance of other companies.

Get started today with Causal

Start building your own custom financial models, in minutes not days.