This archive report was first published on 16 October 2019.
Understanding Earnings Per Share ¶
Published on October 16, 2019, Earnings Per Share (EPS) is a vital metric for day traders, as it helps them determine how much money they'll earn on a per-share basis and whether a company is worth investing in.
Earnings Per Share is not only the profits traders get back but also a way to project a company's future success. It's a metric that helps investors understand how well a company is doing for its shareholders.
What is Earnings Per Share? ¶
Earnings Per Share is the amount of money shareholders make back on their investment in a company on a per-share basis. It's a beneficial metric for establishing a company's growth rate by looking at the EPS over time.
Companies often release a quarterly report each financial year, which investors can use to figure out the EPS and see if the company has had a successful quarter. The more successful the quarter was for the company, the better the EPS is.
Calculating Earnings Per Share ¶
The reason EPS is used, rather than just looking at net profit, is because two companies making the same amount of money may have different amounts of EPS based on how many outstanding shares there are.
EPS is calculated by taking the net profit away from the preferred dividends and then dividing that figure by the weighted average common shares outstanding.
Types of Earnings Per Share ¶
There are different types of EPS formulas used for day trades to gauge the most accurate results possible. These include basic EPS, diluted EPS, trailing EPS, current EPS, and forward EPS.
Basic EPS is the EPS that was calculated above, while diluted EPS takes stock options, warrants, and other contributing factors into account. Trailing EPS looks at a company's past EPS, while current EPS is the prediction of the EPS for the current year.
What to Keep in Mind ¶
Even when looking at different types of EPS and using the formulas above, EPS can still be deceptive. An accounting method known as
