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Earnings per Share (eps) is the amount of earnings per outstanding share of the companys stock. In calculating earnings per share, the dividends of preferred stocks need to subtracted from the total net income first. The formula of the calculation is
Earnings per Share (eps) = (Net Income - Preferred Dividends)/Total Shares Outstanding
Companies also reported diluted shares in their financial reports. Diluted shares include the shares of convertibles or warrants outstanding.
Earnings per Share (eps) = (Net Income
- Preferred Dividends)/Total Shares Outstanding
Earnings per Share (eps) is the single most important variable used by Wall Street in determining the earnings power of a company. But investors need to be aware that Earnings per Share can be easily manipulated by adjusting depreciation and amortization rate or non-recurring items.
Compared with Earnings per share, a companys cash flow is better indicator of the companys earnings power.
If a companys earnings per share is less than cash flow per share over long term, investors need to be cautious and find out why.
, Preferred Stock
, Total Shares Outstanding