EPS, or earnings per share, represents a company’s net income divided by the number of outstanding shares of the company’s common stock. If a company reports $3 EPS, it means the company made enough money during the accounting period to pay investors $3 for every share of common stock they own. Net income does not include dividends paid to common shareholders, so the net profit must be adjusted to accurately calculate earnings per share.
1. Calculate the total preferred dividends paid by the company by multiplying the dividend amount paid per share by the number of preferred shares outstanding. For example, if the company paid $3.98 of preferred dividends per share and had 85,000 preferred shares outstanding, the company paid $338,300 in preferred dividends.
2. Subtract the preferred share dividends from the company’s net income to calculate total income for common shareholders. Continuing the example, if the company has $9.7 million in net income, subtract $338,300 to get $9,361,700 as the income available to shareholders.
3. Divide the income available to common shareholders by the number of the common shares outstanding. In this example, if the company has 2 million shares outstanding, divide $9,361,700 by 2 million to get $4.68 in earnings per share.
- Paul Katz/Photodisc/Getty Images