Series 79: Earnings Per Share

Earnings Per Share

Earnings per share (EPS) is a closely watched measure of a company’s profitability. EPS expresses the amount of a company’s profit allocated to each outstanding share of its common stock. There are several different ways to calculate EPS, but the basic equation is:

Dividends paid to preferred stockholders are normally deducted from net income before calculating EPS.

EPS is usually calculated on a last 12 month (LTM) basis. Thus, if it is being calculated at the end of the first quarter, earnings from the first quarter and the last three quarters of the previous year would be used. If EPS is being calculated at the end of the year, the net income for the entire year will be used.

Example Question

Dithering Dan’s Emporium had net income during the first quarter of $3.1 million. It had total net income for the previous year of $