Earning per share

Earning per share (EPS), also referred to as net income per share and it is a market prospect ratio that helps in measurement of the amount of net income earned per share of stock outstanding. Simply put, this is the amount of money each share of stock would is entitled to receive if all of the profits were distributed to the outstanding shares at the end of the year.

Formula

Formula to calculate Earnings per share ratio:

Earnings Per Share = Net Income – preferred dividends / Weighed Average Common Shares Outstanding

Example

A Company named Vovno has net income of $50,000 during the year. Being a small company, there are no preferred shares outstanding. Vovno had 5,000 weighted average shares outstanding during the year.Vovno’s EPS can be calculated as:

Earnings Per Share = $50,000 – $0 / 5,000

Earning Per Share  $10

By the above figure it is clear that Vovno’s Earning Per Share for the year is $10. This means that if Vovno distributed every dollar of income to its shareholders, each share is entitled to receive 10 dollars.