Earnings Per Share

What is Earnings Per Share?

Earnings per share (EPS) is a financial metric used to measure the profitability of a business by dividing the company’s net income by the total number of shares outstanding. EPS indicates how much profit each shareholder would receive if all of the company’s profits were distributed equally among them. Earnings per share is calculated as the company’s net income divided by the total number of outstanding shares.

Why Earnings Per Share is Important

Earnings per share is an important metric for investors and analysts because it helps them to quickly compare the profitability of different companies. By looking at the EPS of a company, investors and analysts can quickly determine if the company is more or less profitable than its peers. Additionally, EPS provides insight into how well the company is managed and whether or not it is returning profits to its shareholders.

How Earnings Per Share is Calculated

Earnings per share is calculated by dividing a company’s net income by the total number of outstanding shares. For example, if a company has a net income of $5 million and 5 million outstanding shares, the EPS would be $1.

Formula:

Earnings Per Share = Net Income / Number of Outstanding Shares

How to Improve Earnings Per Share

There are several ways that a company can improve its earnings per share. One way is to increase its net income by reducing expenses or increasing sales. Additionally, a company can increase its EPS by reducing the number of outstanding shares, either through repurchasing shares or through stock splits.

Why Investors Value High Earnings Per Share

Investors value high earnings per share because it indicates that the company is profitable and generating returns for its shareholders. Additionally, high EPS indicates that the company is managed efficiently and is returning profits to its shareholders.

How Earnings Per Share Relates to Other Financial Metrics

Earnings per share is closely related to other financial metrics, such as return on equity and price to earnings ratio. Return on equity indicates how much profit the company is generating on its shareholder’s equity, while price to earnings ratio indicates how much investors are willing to pay for each dollar of the company’s earnings.

Examples of U.S. Software Companies:

• Microsoft: Earnings per share of $3.37 (as of FY 2020)

• Adobe: Earnings per share of $5.45 (as of FY 2020)

• Salesforce: Earnings per share of $1.30 (as of FY 2020)

• Oracle: Earnings per share of $3.64 (as of FY 2020)