A company's net income is the difference between its total revenue and the period's expenses and losses. The firm distributes these profits among its investors, giving each of them dividends proportional to the amount of shares they own. The total value of the common shareholders' dividends is the product of the number of outstanding shares and the earnings each receives per share. The net income also includes a separate sum, the value of the company's preferred dividends, which it distributes to preferred shareholders.
1. Divide the value of the dividends that an investor receives by the number of shares that the investor owns. For example, if a shareholder owns 500 shares and receives $800 in dividends, divide $800 by 500, giving $1.60, the earnings per share.
2. Multiply the earnings per share by the total number of outstanding shares. For example, the company has issued 200,000 shares, multiply $1.60 by 200,000, producing $320,000, the value that goes to common shareholders.
3. Add the value of preferred dividends by the value that goes to common shareholders. For example, if the company has guaranteed preferred shareholders $50,000 in dividends, add $50,000 to $320,000, giving $370,000. This is the company's net income.
- "Cornerstones of Financial & Managerial Accounting..."; Jay S. Rich et. al.; 2009
- "Principles of Accounting"; Belverd E. Needles; 2010
- "Financial and Managerial Accounting"; Carl S. Warren et. al.; 2008
- Jacksonville State University: Dividend Transactions