measures the net income earned on each share of common stock. This is a topic that many people are looking for. newyorkcityvoices.org is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, newyorkcityvoices.org would like to introduce to you How to Calculate EPS (Earnings Per Share). Following along are instructions in the video below:
“This video. We re going to talk about how to calculate earnings per share. So so if we remember from other videos. We ve got net income at the end a quarter end of a year and we re going to what we re going to do is we re going to spread this net income among a pool of shareholders right so we ve got all these different shareholders and we re going to spread this this net income.
We re not actually going to pay it out so it s just more theoretical practice. What we re doing here. But we re trying to get an idea of how this net income would be divided up among among the shareholders what s their share what s their claim on that net income. So let s go ahead and let s get to the formula for how we would go ahead and calculate this so we ve got net income and then we subtract out preferred dividends right because what we want to get here is we want to get an idea of the amount of net income among the common shareholders so net income.
We subtract out this just prefer any preferred dividends that are paid or so and then we going to we re going to scale everything by the number of common shares outstanding..
So it might be a little bit easier to understand if we have an example. So. Let s say that we have xyz corporation and xyz. Corporation has let s say they have net income of.
30000 and then they have preferred dividends preferred div of 4000. And then shares out saying now we re talking about common shares so common shares and and again we take the weighted average of the common shares throughout the year common shares. Outstanding i will just assume common shares. Outstanding we ve got 50000.
So now we need to make some calculations here and we re just going to plug in to our formula up here these numbers so let s get started so we ve got in the..
Numerator we re going to have 30000. It s net income then we re going to subtract out the preferred dividend because the common shareholders. Don t have any claim on that that goes the preferred preferred shareholders. So now we re going to divide this whole thing by the number of common shares outstanding not total.
Shares common shares so we ve. Got 30000 minus. 4000 divided by 50000. And what s that going to give us that is going to give us 52 cents a share so one way of thinking about how the earnings is earnings of 30000.
So one way of thinking about how what what share of the pie each shareholder has we can think of it for every share you own you you really have a fifty two cent share in those earnings..
So now we can think about a couple things a little more complex in terms of this this these preferred dividends that we re talking about here. What if the preferred dividends are declared. But not paid so the company is declared that they re going to have a preferred dividend. But they haven t yet paid it do we go ahead and then deduct it in terms of of calculating our earnings per share.
Even if they haven t been paid. The answer is yes. We go ahead and we deduct even if they haven t been paid yet if they ve been declared you deduct them now what if what if the preferred dividends are cumulative which i m going to explain this in another if you don t know what this is go to my other video but preferred dividends. But what if they re cumulative.
But they haven t been declared do we then deduct them from here because again we ve got this here..
What do we do with the preferred dividends well even if they re there they haven t actually been declared. But they re cumulative. We go ahead and we deduct them in our calculation of earnings per share as well. So whether or not the the dividends have actually been paid if they ve been declared.
But whether or not they haven t been declared. But they re cumulative we re going to go ahead and we re going to deduct those preferred dividends from that income scale everything by the number of common shares outstanding the weighted average throughout the year and that will yield our earnings per share. Which in this case was 52 cents a share ” ..
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