Earnings Per Share (EPS) Explained
Overview
Earnings per share (EPS) is a financial metric that measures a company's profitability on a per-share basis. It is calculated by dividing the net income by the number of outstanding common shares.
Types of EPS
- Trailing EPS: Represents earnings generated over a prior period, typically a fiscal year.
- Trailing PE: A valuation multiple based on the last 12 months of actual earnings.
- TTM EPS: The most commonly used version, calculated by adding up earnings per share for the past four quarters.
Importance
EPS is a key indicator of a company's financial performance and is widely used by investors and analysts to:
- Compare the profitability of different companies in the same industry.
- Assess a company's ability to generate earnings.
- Make informed investment decisions.
Limitations
EPS should be used with caution as it does not take into account factors such as:
- Non-recurring expenses or income.
- Changes in accounting methods.
- The impact of stock splits or buybacks.
Komentar