Monday, December 7, 2009

Fundamental Analysis: Earning Per Share

Earning Per Share or commonly known as EPS is a common term among investors. Earning Per Share is calculated to know the earning power of a company per share. This means that the larger the value of Earning Per Share, the better the earning power of the company. Some of you might already be very familiar with EPS because it is a basic analysis that will be used by investors when buying a stock. This is the basic reference for investor to get an idea of the earning power of a company before investing.

Earning Per Share can be calculated quite easily. You need to have the two values below to calculate Earning Per Share:

1. Total Company's Earning
2. Total Share Outstanding

In case you do not understand what is meant by Total Company's Earning an Total Share Outstanding, you might find this post useful to help you identify the two values and calculate EPS.

Total Company's Earning is normally Net Earning. For me, I find it easier to take "Net Profit After Tax" as the value.

Total Share Outstanding is the total number of shares that are currently in the hands of public or investors.

After you know both of the values, you can now calculate the EPS of a stock. The Earning Per Share formula is as below:

EPS = Total Company Earning / Total Shares Outstanding

Please refer to the example to have a clearer idea about EPS.

For example:

BJTOTO BJTOTO is the stock ticker for Berjaya Sports Toto. The EPS based on year 2008 is as follows:

EPS = Net Profit after Tax / Total Shares Outstanding
= 349 millions / 1351 millions
= RM 0.2583 per share.

This is an approximate values of EPS for BJTOTO. It can be seen that EPS = RM 0.2583 per share. this means that for every BJTOTO share you hold, the earning is RM 0.2583.

I hope that the above example can help you understand Earning Per Share (EPS). Start analyzing the EPS of the stock you are holding or planning to buy. You will find some interesting information from the analysis.

Happy investing!


Honey said...

Detailed informative post!
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