Tim Bennett explains ‘earnings per share’ – a vital number for investors which can give you an idea of a company’s performance over time.
• See also: A beginner’s guide to the price/earnings ratio• See all MoneyWeek videos here.
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Earnings per share
Earnings per share is seen as one of the best means of determining a share’s true price, as it shows how much of a firm’s profits (after tax) each shareholder owns. It is calculated by dividing a company’s net earnings by the number of shares issued, and is most often used as a means of comparing one company with another, assuming that they are in the same industry. So if a company had net earnings of £1,000 with 200 shares issued, it would have an EPS of 5. By looking at the EPS over several years you can look for a growth pattern and compare it with the market and industry.
• Entry from MoneyWeek’s Financial glossary.