Earnings Per Share (EPS)

The Earnings Per Share (EPS) formula is used to determine the profit attributable to each outstanding share of a company's stock.

EPS Formula:

$$\text{EPS} = \frac{\text{Net Income} - \text{Dividends on Preferred Stock}}{\text{Number of Outstanding Shares}}$$

• Net Income: The company's total profit after all expenses, taxes, and interest have been deducted.
• Dividends on Preferred Stock: This is subtracted because EPS represents the income available to common shareholders.
• Number of Outstanding Shares: The total number of shares that are currently owned by all shareholders.

 

Let’s assume a company has:

• Net Income: ₹1,000,000
• Dividends on Preferred Stock: ₹100,000
• Number of Outstanding Shares: 200,000 shares

Using the formula:

$$\text{EPS} = \frac{₹1,000,000 - ₹100,000}{200,000} = \frac{₹900,000}{200,000} = ₹4.5$$

Interpretation:

The EPS of ₹4.5 means that each share of the company earns ₹4.5 in net income.