Earnings per share


 

Home
Site Map
Add Term
Search
About Us
Contributors

Earnings per share

Earning per Share (EPS) = Earnings / Number of Shares in IssueEPS is a key ratio used in share valuations. It shows how much of the company's profits, after tax, each shareholder owns.Example: Goodco makes a post-tax profit of £1.2 million. There are 20 million shares in issue. EPS = £0.6What starts out as an easy calculation gets complicated because the rules on what constitute earnings are fuzzy, especially when it comes to 'extraordinary' items:When an industrial manufacturer sells a large parcel of land to a developer should that profit be treated the same as the profits from its mainstream activities?If its profits one year are wiped out by an uninsurable natural disaster at its plant, should that event be regarded as just a normal cost of doing business?Until recently companies had discretion about how they treated one-offs. They could call an unusual profit 'exceptional' and include it in their EPS, and call an unusual loss 'extraordinary' and exclude it from EPS. This made it very difficult for investors to gauge the true progress of the business.Various Financial Reporting Standards (FRS) have tried to regularise treatment of one-offs, but if anything have made analysis harder. Large companies now report EPS in different ways, and the challenge for investors is knowing what basis has been used. When newspapers report EPS they use 'adjusted' EPS (also known as 'headline earnings') which strips out all profits/losses attributable to non-core activities.



Similar Matches

Earnings before interest and, taxes (EBIT)

Earnings before interest and, taxes (EBIT)

A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest and income taxes.


Price earnings ratio (P/E ratio)

Price earnings ratio (P/E ratio)

P/E = current share price of a company divided by its earnings per shareA company with a share price of 100p and earnings per share (EPS) of 5p has a P/E ratio of 100/5 = 20.A company's P/E (also known as its multiple) shows how high its shares are priced in relation to its historical earnings. Although mathematically, it relates share price to past performance, the reality is that P/Es are more about forward expectations than the past. A high P/E indicates that the City expects the company's earnings to grow fast in the future.P/E 're-ratings' by the City can have a dramatic effect on share price. If a company regarded as a growth stock announces sharply reduced trading figures, fund managers may revise their view of the company, and decide that it doesn't justify a growth stock P/E of 20, and can only justify a more normal P/E of, say 12. If earnings were 10p share, that re-rating would suggest a change in share price from 200p to 120p.Equally, if a company announces some major technical breakthrough, or a major contract, the City may decide that its future earnings potential justifies a growth P/E, and re-rate it upwards from 12 to 20 (or equivalent figures). In which case the share price will leap.There is nothing formal about this re-rating procedure. It is simply buyers in the market pushing up the price to reflect a new perception of a company. But P/Es do tend to be comparative, in that companies in the same sector with similar prospects would normally have similar P/Es. If they don't, there is invariably a reason accounting for the difference.


Net relevant earnings

Net relevant earnings

A person's pensionable income (that is, income from employment) plus taxable benefits in kind, less any allowable business expenses but before deduction of personal allowances. For self employed people these are taxable profits less capital allowances or losses from previous years.


Lower earnings limit

Lower earnings limit

The level of income at which employees start to pay Class 1 National Insurance contributions.


Earnings factor

Earnings factor

This is a theoretical earnings figure that is used for working out state pensions or guaranteed minimum pensions.


Further Suggestions

Normalized earnings
Earnings before interest after taxes (EBIAT)
State Earnings Related Pension Scheme
Quality of earnings
Primary earnings per (common) share
Fully diluted earnings per shares
retained earnings
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
earnings yield
upper earnings level
Earnings
Retained earnings
earnings cap
normalised earnings
Earnings before taxes (EBT)
Earnings yield
Earnings response coefficient
Earnings momentum
Earnings price ratio
adjusted earnings
Earnings
earnings
band earnings
taxable earnings
Earnings retention ratio


 
All rights Reserved. Do not copy without permission.