Home » Finance » Stock Market

Tips On Using EPS As A Stock Buying Guide

Aug 22, 2008
For the uninitiated the term EPS will be quite a challenge to master and understand . Here is my Earning Per Share (EPS) primer for the beginners. This will help them understand the stocks and their pricing very easily. EPS is the best bet for getting hold of good stocks.

Earning Per Share is defined as any portion of a company's profitability allocated to each outstanding share. In other words EPS determines the company's profitability. For an average common man it is very important to know the EPS as it will help in making the investment decision.
EPS is calculated as : Net Income - Dividends on Preferred Stock / Average Outstanding Shares

In order to illustrate this with an example: there are two companies A and B where both of them earn $100 but company A has only 30 shares outstanding, while company B has 50 shares outstanding. Then it is important to know which company's stock you should invest? Here we will be using a comparison toll to calculate the earning per share by evaluating the net earnings and dividing by the outstanding shares.

EPS = Net Earnings / Outstanding Shares

Going by the example and the formula of the EPS above we will be able to decide which company is the best bet. Company A which has the earning of $100 and 20 shares outstanding which results as EPS of 5 ($100 / 20=5). Company B which has the earning of $ 100 and 50 as outstanding shares which equals an EPS of 2 ($100 / 50 = 2).

For making your investment decision, EPS which is a very helpful element in comparing one company with another provided they are from the same industry, but even that doesn't tell you whether it is a good share to buy or not. For this we need to have for information of some of the ratios.

Analyzing this further, we should update ourself with the other three types of EPS numbers:
# Trailing EPS - This is the actual EPS or the last year's number.
# Current EPS - These are projected this year's numbers.
# Forward EPS - These are the projected future numbers.

In calculating the EPS it becomes more accurate to use the weighted average numbers of the outstanding shares, as the outstanding shares can differ over the passage of time. Earning Per Share is known as the most important in determining the price of the share.
About the Author
The author follows the stocks in the US market and has considered understanding the stock market basics and fundamentals very important in investing in the stock market . He has a website which teaches the stock market basics for beginners.
Rating:
Please Rate:
(Average: Not rated)
Views: 383
Print Email Report Share
Article Categories
    • Artists
    • Gambling
    • Humanities
    • Humor
    • Movies
    • Music
    • Photography
    • Tattoos
    • Television
    • Classic Cars
    • Motorcycles
    • Recreational Vehicles
    • SUVs
    • Trucks
    • Vans
    • Branding
    • Business Opportunities
    • Careers and Jobs
    • Corporate
    • Customer Service
    • Direct Mail
    • Entrepreneurship
    • Ethics
    • Financing
    • Franchising
    • Home-Based Business
    • Human Resources
    • Import and Export
    • Leadership
    • Management
    • Market Research
    • Marketing and Advertising
    • Negotiation
    • Network Marketing
    • Networking
    • Organizational
    • Presentation
    • Project Management
    • Public Relations
    • Small Business
    • Strategic Planning
    • Team Building
    • Telemarketing
    • Training
    • Data Recovery
    • Databases
    • Games
    • Hardware
    • Networks
    • Operating Systems
    • Programming
    • Security
    • Software
    • Spyware and Viruses
    • Ask an Expert
    • College and University
    • Home Schooling
    • K-12
    • Languages
    • Online Education
    • Psychology
    • Coffee
    • Cooking
    • Gourmet
    • Recipes
    • Wine and Spirits
    • Acne
    • Aerobics
    • Alternative Medicine
    • Beauty
    • Cancer
    • Cosmetics
    • Depression
    • Diabetes
    • Diseases and Conditions
    • Fitness Equipment
    • Fitness
    • Hair Loss
    • Heart Disease
    • Medicine
    • Men's Health
    • Muscle Building
    • Nutrition
    • Skin Care
    • Supplements and Vitamins
    • Weight Loss
    • Women's Health
    • Yoga
    • Arts and Crafts
    • Babies
    • Collecting
    • Elderly Care
    • Genealogy
    • Hobbies
    • Parenting
    • Pets
    • Pregnancy
    • Woodworking
    • Feng Shui
    • Gardening
    • Home Appliances
    • Home Security
    • Interior Design
    • Landscaping
    • Affiliate Programs
    • Article Marketing
    • Auctions
    • Audio
    • Banner Advertising
    • Blogging
    • Broadband
    • Domain Names
    • E-Books
    • E-Commerce
    • Email Marketing
    • Ezines and Newsletters
    • Forums
    • Internet Marketing
    • Link Popularity
    • Pay-Per-Click
    • Podcasting
    • RSS
    • Search Engine Marketing
    • Search Engine Optimization
    • Security
    • Social Media
    • Spam
    • Video
    • Viral Marketing
    • Web Design
    • Web Development
    • Web Hosting
    • Copyright
    • Cyber Law
    • Intellectual Property
    • National, State, Local
    • Patents
    • Regulatory Compliance
    • Trademarks
    • Buying
    • Selling
    • Baseball
    • Basketball
    • Boating
    • Cycling
    • Extreme Sports
    • Fishing
    • Football
    • Golf
    • Hockey
    • Hunting
    • Martial Arts
    • Running
    • Scuba Diving
    • Soccer
    • Swimming
    • Tennis
    • Dating
    • Divorce
    • Marriage
    • Weddings
    • Astrology
    • Buddhism
    • Christianity
    • Faith
    • Hinduism
    • Islam
    • Judaism
    • Meditation
    • Metaphysical
    • New Age
    • Cable and Satellite TV
    • Cell Phones
    • Communication
    • Gadgets and Gizmos
    • GPS
    • Satellite Radio
    • Video Conferencing
    • VoIP
    • Addictions
    • Coaching
    • Goal Setting
    • Motivational
    • Stress Management
    • Time Management
    • Clothing
    • Electronics
    • Fashion
    • Gifts
    • Jewelry
    • Causes and Organizations
    • Environment
    • History
    • Holidays
    • Men's Issues
    • Nature
    • Philosophy
    • Politics
    • Women's Issues
    • World Affairs
    • Air Travel
    • Camping
    • Cruises
    • Destinations
    • Outdoors
    • Article Writing
    • Book Reviews
    • Copywriting
    • Fiction
    • Non-Fiction
    • Poetry
    • Quotes
    • Screenplay
    • Tools and Resources