Earnings per common share is a financial ration as per several market experts. It is the first ratio that is checked by investors when they are deeply analyzing a stock. It is a simple, yet powerful metric that condenses important information in numerical form that is used by investors to make alternative comparisons in terms of investments and estimates the future growth of investment. This metric also helps in charging specific business performances.
All about earnings-per-common share (EPS)
Earnings per common share for a company like Apple would be Earnings Aapl which is a calculation of the company’s totalearnings which are owned by common shareholders and are divided by the common number of shares outstanding. It is preferred to initially find the preferred dividends payable and share numbers before commencing the calculations.
It is important to know the benefits of earnings per common share. The special share class that is entitled to a fixed annual dividend is called preferred shares. If the dividend payable is multiplied with the preferred share numbers and the resulting numbers are subtracted from the net earnings are calculated, then the profit portion of the company that has been given to shareholders can be easily determined. The number that is obtained is divided by the common share numbers to acquire the figure of earnings per common share.
Benefits of EPS
- Calculation of income
- The biggest benefit of determining EPS is the efficient and easy calculation of the amount that the company earns on the investor’s behalf. The claim of the investor on the entire business can be then derived by multiplying the figure by the stock numbers owned by the investor.
- This calculation can be performed for all the companies present in the portfolio of the investor and then the comparison of the profit amount earned by each company on the behalf of one investor can be obtained.
- The per-share income is quantified by EPS and this has made other measures irrelevant. This includes the common share numbers outstanding, business size, and other company issues instruments such as preferred stocks and bonds. It presents a crystal clear view for any analyst.
- Time series
- The variation of management with time can be charted using EPS. This is possible because confounding variables with bank loan assumptions and new product launches by companies are eliminated by EPS.
- If the company has a higher earning of EPS as compared to the previous year, then it is known to do a good job.
- The probability that ‘stocks may split’ is always present. The outstanding shares that the company possesses is collected by it and all old shares are replaced by the new shares in this process. Every old share is split and a new set of calculations which compare old and new EPS become necessary.
- Earnings vs Dividends
- It is decided by the board of directors how the earnings made must be used. The board of directors decides whether the earnings are to be completely taken by the shareholders or some part of it is paid as a dividend so that it can be invested again in the business.