i.e the company offers extra shares to its shareholders. In order to determine the value of earning from the share, shareholders also calculate EPS in two different ways:īasic EPS does not take into account any dilutive effect that convertible securities have on its EPS.įor example, it does not take into account any right issue or bonus issue. Investors use earnings per share to compare with the share price of the shares to determine the value of earning and how shareholders feel about the future growth of the company. It gives an understanding of the profitability of the company. Why Earnings Per Share is Important?ĮPS is very important for all the investors as it indicates that how much income is being earned by each ordinary shareholder. A larger company will have to split its earnings amongst many more shares of stockholders compared to a smaller company. In other words, this is the amount of money each share of stock would receive if all of the profits were distributed to the outstanding shareholders at the end of the year.Ī large company’s profits per share cannot be compared to a small company’s profits per share. What is Earning Per Share (EPS)?ĮPS measures the amount of net income earned per share of stock outstanding. There are a lot of ratios that help the investor to make any investment decision one such ratio is the earning per share which depicts the efficiency of a company in generating profits from its business venture.
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