Basic Earnings Per Share (EPS) = (net income - preferred dividends)/average number of common shares outstanding (weighted).
Now that the formulaic stuff is out of the way, let's get to what it actually means. Basic EPS is an estimate or measurement (albeit rough) of how much of an institution's profit can be assigned to one share of that company's stock.
So, for example, let's say a new pogo stick craze hits the schoolyards of every town in America. Reluctant parents across the nation cave to the incessant demands of their children. Paulie's Pogo Emporium, LLC hits record revenues, resulting in a net income of $20 million, after all expenses are paid and Uncle Sam gets paid his protection money.
Paulie's issues its preferred stockholders some preferred dividends to the tune of $5 million, with a remaining earnings available to the common shareholders in the amount of $15 million. Beginning with 20 million common shares at the start of the year, Paulie's issued 4 million shares in the second half of the year. Consequently, the weighted average number of common shares would be 22 million (20 x 0.5) + (24 x 0.5) = 22.
If you divide the remaining $15 million available to common shareholders by the weighted average of 22 million, your basic EPS comes out to $0.68.
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Finance: What is Earnings Per Share (EPS...33 Views
finance a la shmoop what is earnings per share or EPS? okay you know the lemonade
stand the one with 20 grand in sales and 16 grand in gross profits and yeah will [Balance sheet for Lemonade Stands R Us appears]
spare you the gross jokes you know the customer asks lemonade.. what the fly
was doing in his lemonade and yes of course she said the backstroke what else
would you expect from the people at Schmo really?
so after gross profits there were operating expenses like those and then
operating profits down here that 7,500 thing then there were taxes and yeah
there are always taxes we can grumble about and then finally net income aka [Net income appears on balance sheet]
earnings but then below earnings you'll see that there are a hundred shares in
this little company the founder owns 60 of them mom owns 10 the new stepdad owns
20 he was guilted into it by you know the divorce lawyer and Enrique the
gardener for some reason who has cleverly weaseled his way into the
families arts and minds owns the last 10 its annual report time and the investors
want to know what their earnings per share were so that they can all compare
relative performance on their investments right so the total earnings
of the company in this example was five thousand two hundred fifty bucks which
means that the earnings per share of our little lemonade stand company here or
that 5,250 figure divided by a hundred or 52.50 a share that's [EPS formula appears]
what each share earned if you divvy the company into a hundred little pie slices
or parts so yeah earnings per share equals earnings per slice o pie or wait
lemonade pie has that been done yet time for a new business venture what do you [A plate of lemonade pie appears]
think we're taking investors just call us please
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