## Answers the Question

How much value has each shareholder's holdings generated?

## Calculator for Earnings Per Share

## What Is the Earnings Per Share?

This formula is used to understand how much each share has generated in terms of wealth.

It is often abbreviated as EPS.

## Why Is it Important?

- All things being equal, the higher the earnings per share, the higher the price the each share will command on the open market.

## Formula(s) to Calculate Earnings Per Share

- EARNINGS PER SHARE = (NET INCOME - PREFERRED DIVIDENDS) / SHARES OUTSTANDING

## Common Mistakes

- The number of shares outstanding can be calculated in different ways. Some analysts use the number of shares at period close, but others use a weighted average that takes into account increases and decreases in the number of shares over time. No matter which is used, one must be careful to only compare ratios that have been calculated in the same manner.
- Earnings is not the same as dividends. Just because a firm has a high earnings per share value, it doesn't necessarily follow that the firm will pay large (or even any) dividends.