What Is EPS? (Earnings Per Share) [2 Minutes!] | Your Online Finance Dictionary

hi i'm rainey with finance strategist in this lesson we're going to cover [Music] earnings per share or eps is a ratio that divides a company's profits by the number of shares outstanding to evaluate profitability by knowing the profitability of the company on a per share basis investors are able to calculate important metrics that are used to estimate how much a company is capable of paying as dividends and if the current stock price is reasonable relative to similar companies to calculate earnings per share subtract dividends from a company's total earnings and divide by the number of common stock shares outstanding a rising earnings per share is typically a sign of a healthy company it means that the company is becoming more profitable on a per share basis and its stock prices are likely to appreciate in the future [Music] eps is commonly used to compute the price to earnings ratio or p e ratio the p e ratio measures the price of a stock relative to the company's earnings while eps is a good measure of what a stock should be worth when viewed in isolation it can be misleading for example companies can buy back shares or sell valuable assets to artificially inflate their eps eps also does not account for the amount of debt a company has a highly leveraged company may use debt to produce more profits showing a higher eps but higher leverage makes an investment have higher risk eps calculations are often adjusted for extraordinary items and share dilution in order to give the most accurate representation of the earnings per share as possible [Music] let's hear from you what metrics should be included alongside earnings per share in order to properly evaluate a stock leave a comment below for more information visit www.financestrategist.com finance strategists strategies for you

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