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 five.
By looking at the EPS over several years you can look for a growth pattern and compare it with the market and industry.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
See Tim Bennett's video tutorial: Beginner's guide to investing: earnings per share.
-
Bargain Britain boasts both value and momentumInterview Ian Lance, manager of the Temple Bar Investment Trust, tells Andrew Van Sickle that the outlook for UK stocks has improved and healthy long-term returns are in prospect
-
Greggs’ recipe for success on the high streetGreggs grew from a shop founded in Newcastle after the war into a national treasure. Profits will continue to roll in for patient investors, says Jamie Ward
