Earnings Per Share Formula & Example

Definition: Earnings Per Share (EPS) is a measure of profitability and it allows shareholders to compare one year's earnings with that of another year. It is calculated by dividing the net profit after taxes and preferred dividend by the total number of equity shares.

Formula:
Earnings per share = (Net profit after tax − Preference dividend) / No. of ordinary shares issued
Or,
EPS = Earnings attributable to ordinary shareholders / No. of ordinary shares

Example 1:
Calculate the EPS, given the following figures:
Ordinary shares of $1 each:  $700,000
6% Preference shares of $1 each:  $200,000
10% Debentures  $100,000
Net profit after tax   $330,000
Ordinary share dividends $80,000
Preference share dividends $12,000

Solution:
Earnings per share = (330,000 - 12,000) / 700,000 = $0.45 (correct to 2 decimal places)

Example 2:
Victoria Ltd. has total earnings of $220,000 for the year 2009 and issued share capital of $400,000 comprising 250,000 $1 10% preferred shares and 300,000 ordinary shares of $0.50 each. Calculate the EPS.

Solution:
Earnings attributable to ordinary shareholders = Total earnings - Preferred dividend = 220,000 - (10% * 250,000) = $195,000
EPS = 195,000 / 300,000 = $0.65

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1 comments:

Anonymous 3:03 AM

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