Earnings Per Share Deutsch

Earnings per Share (EPS)

What is Earnings per Share (EPS)?

Earnings per share (EPS) is a measure of a company's profitability. It is calculated by dividing the company's net income by the number of shares of common stock outstanding.

EPS is an important metric because it shows how much money a company is earning for each share of stock. This information can be used to compare different companies and to track a company's performance over time.

How is EPS Calculated?

EPS is calculated using the following formula:

• EPS = Net income / Number of shares outstanding

Net income is the company's total income minus its total expenses. The number of shares outstanding is the number of shares of common stock that are currently held by investors.

What Does EPS Tell You?

EPS can tell you a lot about a company's profitability. A high EPS indicates that the company is earning a lot of money for each share of stock. This can be a sign that the company is well-managed and that its business is growing.

A low EPS, on the other hand, indicates that the company is not earning very much money for each share of stock. This can be a sign that the company is struggling or that its business is not growing.

EPS and Stock Price

EPS is one of the most important factors that investors consider when making investment decisions. A high EPS can lead to a higher stock price, while a low EPS can lead to a lower stock price.

This is because EPS is a measure of a company's profitability. Investors want to invest in companies that are profitable, so they are willing to pay more for shares of stock in companies with high EPS.

Limitations of EPS

EPS is a useful metric, but it has some limitations. One limitation is that it does not take into account the company's debt. A company with a lot of debt may have a high EPS, but it may also be at risk of bankruptcy.

Another limitation of EPS is that it does not take into account the company's growth potential. A company with a low EPS may be a good investment if it has the potential to grow rapidly in the future.