Earning per share i.e. EPS is a financial ratio, which divides net earnings available to shareholders by the average outstanding shares over a certain period of time.
The EPS Ratio indicates a company’s ability to produce net profits for shareholders.
Formula to calculate EPS is:
EPS = (Net Income - Preferred Dividends) / Average Outstanding Shares
Here's an example to illustrate how to calculate EPS:
Let's say Company CKB Company had a net income of ₹10 million in the last financial year. The company also paid preferred dividends of ₹1 million. The average outstanding shares during the year were 5 million.
Using the EPS formula:
EPS = (₹ 10 million - ₹1 million) / 5 million EPS = ₹9 million / 5 million
Thus EPS = ₹1.80 per share
Therefore, the EPS for CKB Company is ₹1.80 per share.
This means that the company generated ₹1.80 in earnings for each outstanding share of common stock.
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What is earnings per share and it significance in financial accounting reporting?
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