Earnings per share explained

Earnings per share explained - calculation & definition

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Apart from turnover and profit, there are many other indicators that show you where a security is heading. At this point I would like to show you what earnings per share is and what exactly you can read from this value.

Definition of EPS/earnings per share

The basic calculation of earnings per share (EPS) is done by dividing a company's profit or net income by the number of shares outstanding. This tells you how much of the total profit in a year is attributable to each share.

Shares outstanding

Shares outstanding are the securities currently held by all the company's shareholders. This does not include shares owned by the company itself. The value is variable due to purchases, sales, repurchases and new issues.

Example of EPS calculation

For example, you look at a company with a net income of one million euros. From this you subtract any higher dividends for preference shares and arrive at a value of, say, 950,000 euros. Now look at how many shares belong to the AG itself and how many outstanding shares there are. If we put the sum of outstanding shares at 100,000, the net profit for the year is divided exactly by this value and we get a profit per share of 9.5 euros.

To first arrive at the net profit for the year, you must first deduct taxes from the gross profit. This gives you the result of an income that is either passed on to the shareholders in the form of dividends or retained, i.e. reinvested. As a rule, this key figure is published directly by the group.

In addition, the online brokers show you the net profit for the year as well as the earnings per share (EPS) in their briefings on the respective shares. So you can see this and other information in exness forex broker and decide for or against an offer on the basis of these figures.

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So what exactly does earnings per share (EPS) tell investors?

What you can do with earnings per share (EPS) to begin with is to carry out an initial fundamental analysis of the company. The result of the calculation can be understood as a kind of return on shares and shows whether the AG generates any earnings per share at all or whether the quantity of outstanding shares is so large that in the end hardly anything reaches the individual shareholder. Roughly speaking, it is a matter of spreading the profit.

Fundamental analysis

Fundamental analysis attempts to determine the intrinsic value of a share. For this purpose, external factors that could change the share price in the future are also included. These are brought into connection with the annual financial statements and the development of the industry. Besides technical analysis, fundamental analysis is the most important tool in the stock trader's toolbox.

However, the ratio is quite unsuitable for making an absolute valuation. Instead, earnings per share (EPS) is put in relation to other companies on the stock market. You can thus see which shares have a higher earning power, where the purchase is therefore more worthwhile within a segment.

The easiest way to trade shares online is to do so: You open the profile at your broker, browse through the shares and the share price of companies that interest you from a certain sector and go to the corresponding statistics page.

Now you can look at key figures such as profit, turnover, earnings per share (EPS) and the price-earnings ratio (P/E ratio). For earnings per share, the higher number is the better one. It shows that here you can also expect a good return compared to other companies. It also makes sense to refer to the past years, from which an average growth per share can be derived.


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