What is earnings per share

Public companies have to earnings per share (EPS) in line with net income in the profit and loss accounts report. This is mandated by the generally accepted accounting practices (GAAP). The EPS image gives investors a means of determining the amount of activity on its stock share investment. In other words, tells the investor how much EPS-net income business share for each share they own. It is calculated by dividing net income divided by the total number of shares capital share. It is important that the shareholders that the net income of the company shall be communicated to them on the basis of per share-as they are with the price of their shares can compare.

Private companies have report EPS since shareholders are more on total net income of the company.

Public corporations report actually two EPS numbers, unless they have what is known as a single capital structure. Most companies who publicly held, however, have complex capital structures and has two EPS figures. (A) is called the Basic EPS. the second is called the diluted EPS. Basic EPS is based on the number of shares is excellent. Earnings after dilution are based on outstanding shares in the future in the form of stock options issued.

This is obviously a complex process. An auditor has to adapt the EPS formula for an arbitrary number of events or changes in the business. A company can issue additional shares shares during the year and buy back some of its own shares. Or, perhaps, the different classes of stock, leading the net result will be divided into two or more pools-one for each class of shares. A merger, acquisition or transfer will also affect the formula for EPS.

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