EPS
Earnings Per Share (EPS) is a vital financial metric that shows the portion of a company's profit allocated to each outstanding share of its common stock. It indicates how much each shareholder would hypothetically receive if all profits were distributed as dividends.
EPS is calculated by dividing the company's net income attributable to common shareholders by the weighted average number of outstanding shares over a specific period. This calculation excludes shares that do not qualify for dividends, ensuring accuracy in reflecting earnings available to shareholders.
Even in periods of negative earnings, EPS reveals how much each share would bear of the loss, aligning with the concept of limited liability where shareholders are not personally liable beyond their investment.
In summary, EPS provides shareholders with a straightforward measure of a company's profitability and its ability to generate returns, aiding in informed investment decisions.
By CA L.Muralidharan and CPA L.Mukundan
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