EPS stands for "earnings per share," which means how much profit a company brings in on for each outstanding common share during a quarter or a year. Investors use EPS as one financial metric on which to value the stock's performance. It's also important to compare a company's EPS from year to year to see whether it is increasing or decreasing. Figuring the EPS requires you to calculate the company's total earnings and to know how many shares of common stock are outstanding.
1. Add the cost of sales to the company's operating expenses, and subtract the result from the company's total revenue, to find the company's operating income. For example, if the company has $6 million in revenue but $1.9 million in operating expenses and $1.4 million in costs of goods sold, the operating income is $2.7 million.
2. Subtract the interest and tax costs of the company for the year from the operating income, to find the net income. In this example, if the company pays $200,000 in interest and $900,000 in taxes, subtract $1.1 million from $2.7 million to get $1.6 million.
3. Subtract the value of any preferred dividends paid by the company from the result to find the company's earnings available to common shares. Continuing the example, if the company paid $700,000 in preferred share dividends, subtract $700,000 from $1.6 million to find that the company's earnings available to common shares equals $900,000.
4. Divide the company's earnings available to common shares by the number of shares outstanding. In this example, if the company has 760,000 shares outstanding, divide $900,000 by 760,000 shares to find the company stock has an EPS of $1.18.
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