Earnings Per Share Growth is used to determine the profitability of a company by determining how much is the profit of the company per share of common stock outstanding after taking into account important stock dividends paid out during that particular year. In simple words, Earnings Per Share Ratio measures the amount of a company earns allocated on a per share basis.

A company with higher earnings per share growth indicates that it has more profit for investors besides if you have funds you can invest it back into your business for generating more profit. A higher Earnings per Share Ratio indicates high investment. It is worthwhile to be noted at this point that Earnings per Share Growth Ratio is only held for publicly held companies since they are required to report earnings per share information.

The Earnings per Share Ratio tells you whether or not earnings per share have increased during the last year as compared to the year before. It is a very useful metric for investors because it tells you whether a company is profitable or not. Normally EPS Ratio is calculated by dividing the company’s net income with its total number of shares outstanding. It is a simple tool that marketers usually use nowadays in order to determine the profitability of a company if they are buying its shares.

One of the best way to calculate the EPS ratio nowadays is to calculate it on the trend line. If the trend is positive, then the company is in profit. If the trend is negative, then it means that the company is in financial crisis and it will lead to a decline in the stock price.

## How to Calculate Earnings Per Share

In order to calculate the earnings per share ratio subtract any dividend payment due to the holders of preferred stock from the net income after tax and divide it by the average number of common shares outstanding during this period. You can scrap this information from the company’s net income and balance sheet.

**The simple formula is**…

(Net Income after Tax-Preferred stock of dividend)/Average number of common shares outstanding.

Example

Let’s take an example a somewhat company has net income after tax of $, 100,000 and has to pay out $20,000 in dividends. It has both bought back and sold its stock during the measurement period, the average number of common shares during this period was 40,000. The company’s earnings per share ratio is…

($100,000 (Net Income)-$20,000 (Preferred Stock Dividends)/40,000 (common shares)

The result is $2 per share.

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There is also the other trick to calculate the earnings per share ratio. In order to calculate the earnings per share ratio just calculate the earnings per share for the year ended and for the prior year. To calculate the earnings per share ratio just subtract the preferred stock dividends from after-tax net income and divide the measure by the number of shares of outstanding common stock.

In order to calculate the EPS Growth Rate, just subtract the EPS for the prior year from EPS of the year just ended. After that just divide the result by the prior year EPS. While calculating the exact EPS, it is advised to use the weighted ratio as the number of shares outstanding will be changing over time.

Earnings per Share Ratio is some part of a company’s profit that is allocated to every individual share of the company. It is a term very crucial to investors and the people who trade in the stock market. The higher earnings per share ratio indicate the profitability of a company. Other ways to calculate the EPS ratio are as follows.

Net Income after tax/Total Number of outstanding shares.

(Net Income after Tax-Total Dividends)/Total Number of Outstanding Shares.

EPS Ratio also includes convertible shares as well as warrants under outstanding shares. It is the mixed form of the basic earnings per share ratio. If you are an investor who is interested in the primary stock of income, then the earnings per share ratio will tell you that the company has room for increasing its dividend amount.

## Three Types of Earnings Per Share

EPS of a company is calculated in relation to other companies in order to make updated and intelligent investment decisions. Nowadays EPS is used by analysts and traders in order to estimate the financial strength of the company and is one of the most strategic variables in determining stock value.

It is also considered as the bottom line and the final statement. There are three types of EPS based on where the data is coming from.

- Trailing EPS.
- Current EPS.
- Forward EPS.

A trailing EPS estimates the company income generated over a particular period and uses the actual numbers instead of just projections or determined estimations. Most EPS are calculated using this type of EPS because it actually tells you what is either happening or what is not happening. The trailing EPS figures are accurate. However, one of the drawbacks of trailing EPS is that investors consider it a piece of old news and look at the current and forward EPS figures.

Current EPS is also one of the types of EPS and includes the four quarters of the current tax year some of the passage of time already passed on while some have yet to come. In simple words, current EPS includes the data that is based on the actual figures as well as based on the projections.

Another type of EPS is forward EPS. A forward EPS is based on the data for some period of time in the future usually the upcoming four quarters. If you are a financial analyst, you can calculate the forward EPS else the company will determine itself. Forward EPS is based on the estimations, and nowadays investors are often interested in the Forward EPS, as they want to know about the future of the company that whether it is in increment or decrement.

Nowadays investors calculate and compare different EPS calculations. They can compare the company’s forward EPS with the company’s actual earnings per share for the present time in order to determine the profitability of the company or its declining. If the EPS falls short of the forward EPS, the stock price can fall. If the EPS beats the estimates the stock can experience a short rally.

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