What is the earnings per share?

When we speak of earnings per share (EPS) we are referring to a stock market ratio that measures how much profit, from what is obtained by the company as a result of its actions, will have each share that the partners have.

How to calculate BPA

In order to calculate this value, we use the following formula:

EPS = (Net profit / No. of shares)

As for the term "profits", it must be taken with a grain of salt, since it is not entirely about the profit that the company has achieved: it must be seen if it is through expected income, operating income or extraordinary benefits.

You also have to take into account the number of actions that are released to the market. It is not the same that the profit is distributed between a certain number of shares than between a greater number. For this reason, it is necessary that we make a scale before calculating EPS, in which we approximately calculate the number of shares available and issued by the company in order to calculate EPS.

Various measures or indicators can be taken, such as the number of shares as of December 31, or take advantage of any issue to add to the company's existing shares.

On the other hand, if we want to know the value of EPS of a company because that value has risen, we must question the cause. The reasons can be 3:

  • Profit has gone up
  • Company shares have decreased
  • Both things have happened

In this situation, the shares should be bought, since it offers a high EPS. But this is not always the case:

  • El net profit it has been considered as fixed, this variable being able to be over the months, and even presenting losses.
  • On the other hand, if the number of shares is increased, EPS goes down, which is why the share is induced to sell. However, perhaps this is because a project is going to be financed in which great future benefits are going to be achieved ...
  • EPS is an estimate, since the profit of a company is not subject to a company's dividend.

Earnings per Share Calculator (EPS)

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