We will look after the Earnings Per Share (EPS) meaning and definition. Similarly, for example, the formula, and importance of EPS.
Earnings Per Share (EPS)
EPS is the company’s profit divided by the outstanding share of its common stock. It indicates how much money a company makes for each share of its stock. It also indicates the profitability of a company. A higher EPS indicates greater value because investors will pay more for a company’s share if they think the company has higher profits relative to its share price.
Similarly, higher EPS means a company is profitable enough to pay out more money to its shareholders. Moreover, a higher EPS can help the company to distribute higher dividends.
Formulas
EPS = (Net Income – Preferred dividends) / Average outstanding common shares.
Example of Earnings Per Share (EPS):
Following are the examples of EPS:
The EPS is taken from the fourth quarter of 2078/79.
| S.N | Companies | EPS |
|---|---|---|
| 1 | Nabil Bank Ltd (NABIL) | Rs. 21.78 |
| 2 | NIC Asia Bank Ltd (NICA) | Rs. 39.13 |
| 3 | Mahila Laghubitta Bittiya Sanstha Ltd (MLBSL) | Rs. 101.76 |
| 4 | Himalayan Distillery Ltd (HDL) | Rs. 69.50 |
| 5 | Jeevan Bikas Laghubitta Bittiya Sanstha Ltd (JBLB) | Rs. 75.60 |
Importance of EPS/ USE of EPS
The following are the importance of EPS
- EPS is useful for determining a firm’s profitability on an absolute basis,
- EPS is the major component for the calculation of the P/E ratio.
- It is one of the indicators of a company, an investor could use to pick stocks.
- EPS is useful for comparing a company’s market price and helpful for decision-making.
In our country, EPS is generally calculated quarterly basis by the company. Quarterly realized EPS is annualized EPS It helps investors in decision-making.
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