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How to Calculate Earnings per Share

By Edited Oct 4, 2015 0 0

This article will show you how to calculate the earnings per share of a publicly traded company. While most investing sites such as Yahoo Finance or Google Finance will provide this figure, it is helpful to know how to calculate it yourself, because you always want to do your own homework when it comes to researching stocks.

Things You Will Need

Either a calculator or (preferably) an Excel spreadsheet. If you don't have the latter, use a spreadsheet from Google Docs.

Step 1

In order to calculate the earnings per share (EPS) of a company, you need to first be able to find the earnings of the company. The best place to look for this is the company's 10-K or 10-Q, which are it's annual reports and quarterly reports, respectively. The Securities and Exchange Commission requires companies to file financial statements every quarter, so you can use these to see exactly how much the company makes. To find the earnings that year or quarter, find the income statement. In a 10-K, the income statement is in Item 8 from the table of contents.

Step 2

When you locate the income statement, the earnings are always the last line (hence where they get the name "bottom line"). In short, net income or earnings is the amount of money in profit that the company makes after deducting its expenses from its revenues.

Step 3

Next you will need to find the total number of shares outstanding for that company. This number can also be found in the annual reports, but all the finance sites (including Google and Yahoo) will usually have an accurate number for this, since it changes infrequently.

Step 4

The earnings per share is then calculated by simple division of the total earnings over the number of shares outstanding. Simple as that!
Earnings per share is a great metric for valuing stocks, similar to the price to earnings ratio. It gives an all-else-equal comparison between two stocks in the same category, although it must be used carefully; it is only truly applicable for companies that have the same share price. Why is that? If one company trades at $20 per share while it's competitor trades at $300 a share, then most likely the competitor will have an higher EPS metric. But, if they both are trading at about $20, and the company has an EPS of $0.10 while the competitor has an EPS of $1.00, then obviously you might want to consider buying the competitor.

Tips & Warnings

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