July 31, 2014

Calculating Earnings Per Share

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Earnings per share is one method that is used by investors to decide whether their trades are successful or not. Earnings per share are just one part of the financial puzzle concerning stock trading investments, and knowing how to calculate the earnings per share is important for any investor in the stock market or other trading markets. Earnings per share is a financial tool that is frequently used by investors and businesses alike.

Earnings per share is not a complex formula that is extremely complicated. Earnings per share are calculated by dividing the consolidated net income of the company by the number of shares of stock the company has issued. This seems very simple, but there are factors that can affect the earnings per share formula. If there is a capital increase, if the number of shares changes during the reporting period, from a stock split for example, or if certain other occurrences happen then this will affect the formula and the earnings per share.

Diluted earnings per share is another financial tool that is used frequently by companies and investors. The calculation for this formula is to divide net income for the company by the average number of shares that are outstanding minus treasury stock and then adjusted for the outstanding options effect while considering the share price on the balance sheet date. First the total number of shares without consideration, or bonus shares, are calculated. Then this number is divided into the net income for the company to give a diluted earnings per share price.

Calculating the earnings per share and the diluted earnings per share is important for the financial success of stock traders as well as businesses. These numbers are reflective of the overall success of the company and the trader. These figures represent whether a share of stock has increased or decreased in value. Earnings per share is also reflected in the dividend payments that are made by the company.

The formula that is used to calculate earnings per share is not real complicated, but there is a formula that must be followed. The formula used to calculate diluted earnings per share has more involved and more steps to follow, because this formula takes into consideration factors such as treasury stock and outstanding options effect. Learning how to do the calculations and figure out the earnings per share and diluted earnings per share is important for any investor or trader who deals with stocks at all.

Copyright 2007 Joel Teo. All rights reserved.