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Earnings Per Share EPS (Formula, Example) | How to Calculate EPS? - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
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clicking the bell icon friends today we
are going to learn tutorial that is on
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earning per share so we are going to
discuss a couple of things over here the
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first is the basic EPS the meaning and
the calculation and so on and so forth
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examples so let's start see when you
analyze any a company's financial health
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the very first measure that you may want
to check is the profitability of the
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company absolutely so the portion of the
company's profit allocated to each
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outstanding share of the common stock is known as the earning per share now
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though the interpretation of earning per
share is relatively easy
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however the EPS calculation is not that
simple
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like for example we'll have a look at
the Colgate Palmolive earning per share
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schedule and let's have a look what's
there now this is Colgate Palmolive
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company's notes to consolidated
financial statement which has details
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relating to p/e sig EPS diluted EPS so
we note something that there are two
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variation of EPS one that is basic
another that is diluted EPS in Colgate it
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also if you know that there are stock
options and restricted stock units they
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are affecting the total number of shares
outstanding so if this is slightly
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confusing at this stage then you don't
need to worry the primer on the EPS
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cover the basic and then you you take to
the advanced level of earning per share
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so we'll start with what is earning per
share and then we'll move on at the very
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first stage most commonly use corporate
profitability measure for the publicly
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traded firms earning per share tells a
common shareholders how much the available
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income is associated with the share and
they own the
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that is a pie so what are the important
notes regarding EPS you can say the
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first one EPS is only reported for the
shares of the common stock second the
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non-public traded firms are not required
to disclose EPS calculation the Third
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Point EPS provides an insight to the
common shareholders about what the
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future dividend payout and the value of
the shareholding so there is thing
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called simple versus complex capital
structure when we we don't want to get
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there but just on a slight note I can
tell you that you know a company's
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capital structure is simple if it
consists of only common stock so if it
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is common stock then it is simple
structure or it includes no potential
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common stockholders that upon conversion or exercise could dilute the earning of
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the common share in our complex capital
structure has securities that could have
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a dilutive effect okay that could have a
negative effect on the earning per share
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so this is your complex structure these
are the two structure now let's start
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with the basic EPS definition so the
basic EPS calculation does not consider
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the effect of any dilutive security so
there'll be no consideration over here
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here we use the actual earnings and the
actual number of issued common shares so
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let's understand the formula of basic
EPS basic EPS is your net income once
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you write your net income less your
preference dividend whatever preference
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dividend you pay divided by it's called
weighted average common shareholders
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outstanding or WACS that is weighted
average common shareholders that as the
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number of shares outstanding so the
current year's preferred dividend is
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subtracted that as the preference
dividend as we can see is subtracted
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from the net income because EPS is
refers to earning available to the
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common shareholders common stock
dividends are not subtracted from the
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net income let's take some example to
understand this and get into the
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nitty-gritty of the same so let's take
the example of Colgate now we'll be
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taking Colgate example cold it has a
complex capital structure why because
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absolutely there must be some dilutive
security reason is that the capital
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structure contains stock options so
which are dilutive and restrictive stock
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units that may increase the number of
shares outstanding so your denominator
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will get affected and if the number of
share outstanding increases it's a
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simple rule the EPS has to decrease
provided the net income remaining the
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same so in this case Colgate's number of
shares outstanding due to stock options
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and the restricted stock units is 9.1
million for the year 2014 a
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basic look at this $2.41 relative is $2.38 so because of the
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restricted stock units that is 9.1 it the basic EPS is getting
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reduced to $2.38 which
is your dilutive EPS so let's take a
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common example of Colgate how the EPS has been calculated the net income of
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2013 attributable to the common
stockholders is to $2,241 million okay
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of Colgate and the common shares
outstanding is 930.8 million EPS
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calculation of Colgate is quite easy $2,241 is your income divided by
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the number of shares that will give your
EPS $2.41 which we just discussed a few
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minutes before so this is how your basic
EPS has been calculated let's take
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another example and get into it the same
let's say there is a company called
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Albatross Inc 2 into the a 2007 which
has a net income of close enough to 1
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million
sorry it's $1,00,000 and the
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additional data that is available is $1,00,000 shares of class A preference
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cumulative shares dividend amounting to
2 per share this Class B of 50,000
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shares which is non cumulative dividend
amounting to 1.5 and no dividend
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declared or paid in the current year so
what will be the numerator or basic EPS
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that we are talking about so let's see
the calculation how things are written
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the numerator of EPS is your net income
the preference dividend so net income is
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$1,00,000 the amount attributable
to Class A shareholders that is over
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here as as we saw 2 per share so $2,00,000 an amount attributable to Class B
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so Class B shares are non cumulative so
there is no obligation on that and with
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no dividend declared for the year so no
amount is deducted from the net income
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so a net incomes net income comes comes down to $8,00,000 and the weighted
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average shares now the weighted average
shares on the first on 1st January was
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1,00,000 then on April 1st 20,000 shares
were been issued okay there were
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other details like first June 30000 shares was issued on October
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50,000 and on 31st December final year
and end balance was 1,40,000 so
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let's go down and see how things have
been calculated so 1,00,000 shares was
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till 31st of march was outstanding for 3
3 months so the weighted average has is
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25000 then the number of
outstanding his shares are getting to
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1,20,000 because new shares have been
added that is 20,000 so
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1,20,000 shares outstanding for 2
months from 1st April to 31st of May
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so those number of weighted shares is
20,000 for 1st June as you
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can see the 1st June to 30th September the new shares were issued that is on 1st
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30,000 shares were repurchased so in
case of repurchase the shares will
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reduce so in accordance with that for 4
months the weighted average number of
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shares is 30,000 and from an in
final 50,000 new shares were issued
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which will give us the weighted average
shares as 35,000 so the new shares now
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I've been added 90,000+50,000=1,40,000
for 3 months
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35,000 which gives a final weighted
average number of shares as 100
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1,10,000 so if you just divide the
net income divided by 1,10,000 that
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will give your final EPS
now the final concept that I want to
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take you is that how earning per share
is related to the stock market see
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earning represents the profitability of
the company and is considered to be the
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most important indicator of the
financial health of the company earnings
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are reported 4 times a year by the
public listed companies and we note that
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you know the research analyst and the
investor closely follow the earnings
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seasons so growing earning or EPS is a
measure of company's great performance
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and in a way a measure of return for the
investors in fact EPS is directly
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related to these stock markets by the
way of wide crackled Wall Street p/e
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multiple or price by EPS ratio so lower
the p/e multiple compared to the
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industry average bettor it is from the
point of view of the view of the
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investments in evaluation so the stock
prices the real react sharply to the
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quarterly earnings due to the very same
connection for example over here as you
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can see is the per share price movement
of blackberry limited fewer about
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blackberry long time ago after the
quarterly earnings report if you note
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over here these sharp movements in the
stock prices are they over here there is
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a drastic moment in the stock prices
post the earning report see the level of
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the fluctuations right over here so
that's it for this particular topic if
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