Investors use earnings per share as one way to figure out if their trades are successful or not. Earnings per share are just one piece of the financial puzzle that is stock trading. Any investor in the stock market or other trading markets needs to know how to figure out earnings per share. Earnings per share is a financial tool that investors and businesses use all the time.
The formula for figuring out earnings per share is not very complicated or hard to understand. Earnings per share are found by dividing the company's consolidated net income by the number of shares of stock it has given out. This seems easy, but the earnings per share formula can be changed by a number of things. If there is a capital increase, a stock split, or something else that changes the number of shares during the reporting period, this will change the formula and the earnings per share.
Diluted earnings per share is another tool that companies and investors use a lot when it comes to money. For this formula, you divide the company's net income by the average number of shares that are outstanding minus the number of shares that are held in treasury. You then take into account the effect of outstanding options and the share price on the date of the balance sheet. First, the total number of bonus shares, or shares that were given for free, is figured out. The diluted earnings per share price is then calculated by dividing this number by the company's net income.
Stock traders and businesses need to know how to figure out the earnings per share and the diluted earnings per share in order to make money. These numbers show how successful the company and trader are as a whole. These numbers show whether the value of a share of stock has gone up or down. Dividends are another way that a company shows how much money it made per share.
Earnings per share are not hard to figure out, but there is a formula that must be used. The formula used to calculate diluted earnings per share has more involved and more steps to follow, because this formula takes into consideration factors such as treasury stock and outstanding options effect. Any investor or trader who deals with stocks at all needs to know how to do the math and figure out the earnings per share and diluted earnings per share.
All rights reserved. Copyright (c) 2007 Joel Teo.
