Earnings Per Share (EPS) and EPS Growth

EPS = indicates how much profit a company makes in a given time and how well management is using returned earnings to increase shareholders wealth.

EPS is an indicator of a company’s profitability and represents the portion of a company’s profit allocated to each outstanding share of common stock.  Companies with strong EPS numbers typically have strong stock prices, while companies with weak EPS numbers typically have weak stock prices. Calculate EPS by taking the net income a company produces—which is the money that is left over in the company once all of the appropriate expenses and taxes have been subtracted from the company’s revenue—and dividing it by the total number of outstanding shares of stock in the company.

Calculation:  EPS = net income – dividends on preferred stock / average outstanding common shares.

Company A has a first quarter net income of $100 and $10 in average shares outstanding. No preferred stock.

EPS = $100/$10 = $10

 

The EPS Growth rate is an indicator of future prospects of a company.  It is usually expressed as a percentage.

ESP year 2 – EPS year 1  ==   X/EPS year 1  X 100

 

  • EPS should be at least 15% over 3 years
  • EPS should be at least 20% over 5 years
  • A negative EPS indicates negative growth.

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