Howdy Wall Street Willy. In the newspaper, I read something about EPS. But what is EPS anyway?
EPS stands for Earnings Per Share.
EPS is the profit, or earnings, of the company for one year, divided by the number of stocks that the company has.
Well, what does that mean?
As you know, the ownership in a company is defined by stocks. EPS is the amount of the company’s earnings assigned to each stock.
Well, could you give me an example?
If a company has 100 stocks, and has made a profit of $50 in the year, the EPS is $50 (its earnings), divided by 100 (the number of stocks it has). So the EPS for that company will be 50 cents per share.
So if you own 5 stocks in the company, your share would be 5 times 50 cents, or $2.50.
So if I own one stock of the company, do I get an amount equal to the EPS every year?
No, EPS is what each share earns. However, it is not what you get as a stockholder. You only get a portion of the EPS. The remaining is usually reinvested by the company to improve its operations – like for buildings and factories.
The portion you get as a stockholder is called a dividend. But that’s a topic for another time.
Thank you very much for telling me about EPS, Wall Street Willy.
You’re welcome, Sooper Cooper. Remember, finance is your friend!