Earnings per share (EPS) is a financial metric that calculates the portion of a company’s profit allocated to each outstanding share of its common stock.
What is earnings per share?
It is often used as an indicator of a company’s profitability and is calculated by dividing the company’s net earnings by the number of outstanding shares. EPS provides insight into how much profit a company generates for each share of its stock, which can be useful for investors and analysts evaluating a company’s financial performance.
Earnings per share is calculated using the formula:
ESP = Net income / Number of outstanding shares
Example of earnings per share
Let’s consider a fictional company, XYZ Corporation, to illustrate earnings per share (EPS).
XYZ Corporation has a net income of £1 million for the fiscal year. The company has 500,000 outstanding shares of common stock.
ESP = £1,000,000 / 500,000 = £2
So, the earnings per share for XYZ Corporation would be £2. This means that for each share of common stock, the company earned £2 in profit during that fiscal year.