Shareholders own stock in a company, which entitles them to a share in the firm's profits. The more shares investors own, the greater the dividends they will receive. Companies state the income that each individual share brings in terms of a stock's earnings per share (EPS). This value, which determines the dividends that shareholders receive, depends on the total income available to shareholders, and the number of outstanding shares.
1. Subtract from the company's net income the value of the preferred dividends. This amount includes income owed to parties separate from the common shareholders. For example, if the company has a net income of $500,000 for the year and has promised a fixed annual dividend of $50,000 to preferred stockholders, then calculate $500,000 - $50,000 = $450,000.
2. Divide the total earnings distributed to common shareholders by the number of outstanding shares. For example, if the company has issued 50,000 shares, then $450,000 ÷ 50,000 = $9. This is the earnings per share.
3. Multiply the earnings per share by the number of shares that an investor owns. For example, if an investor owns 100 shares: $9 × 100 = $900. This is the value of the dividends that the company owes the investor.
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