Finance is a highly competitive market and people are always finding new ways to earn dividends and make money from the market. Calculating your Earnings per Share is a simple task, yet it provides a lot of information, depending on what stocks you are investing in.
Earnings per share are often based upon the amount of profit that any given company is making, which is then divided between any shares that are outstanding from stock that is available to be purchased on the market. An Earnings per Share is a great metric to value any given company’s overall profitability and can be used to improve your predictions in the future.
Earnings per Share is a great introduction in to learning how to stock market works and when you begin to learn how to use the stock market to make money, things can be quite confusing. We recommend that you take a lesson or two in the basics of the stock market, learning how to buy and sell things effectively, learning how to call and sell. This course in the basics of the Stock Market will teach you what you need to know to start working the stock market in your favour. Often, the things that seem confusing just need a little more basic knowledge to understand and taking a course can really help in this regard.
Earnings Per Share, or E.P.S., is easily calculated. When you want to calculate any given Earnings Per Share it is advised that you use a weighted average of the share number that is currently unclaimed as the values of shares often change over the time it takes for a single report cycle to finish. Either weight the average or only use information from the end of a financial cycle.
Earnings Per Share is often used in combination with Technical Analysis, another popular method of looking for good companies to invest in. We advise that you educate yourself on Technical Analysis before you buy any shares and we think that these courses are perfect for an introduction to technical analysis. You can find Technical Analysis advice with this course pandering to the low level technical analysist.
When you use mathematics to predict the stock market, don’t be surprised when your prediction is incorrect. Often, there are many more variables that you need to integrate into your mathematics, which you cannot know without insider knowledge. If you do happen to have insider knowledge, do not use it for trading, as this is highly illegal.
Problems with stock predictions are that often, things easily change the market feel and can often change the entire index.
There are five sets of primary number that you may wish to calculate Earnings per Share with. These are:
1. Reported EPS
2. Ongoing EPS
3. Pro Forma EPS
4. Headline EPS
5. Cash EPS
Generally, you do not want to use headline Earnings per Share values as often they are not 100% true, nor do you get enough information to get an accurate representation of Earnings per Share. Only use these headline figures if you have no other information on the company. However, this itself should be a warning sign!
Cash Earnings per Share is probably the best one to base any decisions from.
Cash Earnings per Share is the most important because the number obtained is the best representation as cash flow cannot be effected quite as much as any other values available for Earnings per Share. If you are evaluating different companies, pick the one with the highest cash Earnings per Share, as these companies are generally in the best condition, financially.
Using the Ongoing EPS as an investment information point is a great idea on companies that have been around for a long time. Ongoing EPS uses normalized and averaged data from the past to inform the current numbers, which means that over the life of the company, this value will go up and down, slowly with the index price of the stock. Using these values for Earnings per Share means your EPS calculations will take into account the good and bad times of the business. If you still have high Earnings per Share value, this company might be a good company to invest in, with lower risk. The ongoing Earnings per Share numbers will absorb the costs of new machinery, for example if a new factory had to be opened, this would reduce profits for the year, which would also reduce Earnings per Share numbers.
Pro Forma Earnings per Share numbers are generally based from assumptions, which means your Earnings per Share numbers can be wildly inaccurate. Don’t put too much stock into these values.
For our example, our companies income is $25 million. To begin with, $1 million dollars is subtracted from any income, which results in $24 million, which is then averaged to find the rest of the share prices. (0.5 x 10M+ 0.5 x 15M = 12.5M).
Earnings per Share is often used alongside P/E to see whether the numbers given are a good version of how the company is actually doing, as opposed to how the numbers represent the companies success. Often, research and assumptions go into the P/E values, which can change their values quite a lot. Looking further in to it, you might disagree with what the research says about the company.
The stock market can be very profitable, but you must bare in mind what kind of knowledge is necessary to succeed. As with any new skill, learning to play the stock market is difficult and you are likely to fail the first few times you make an investment. You should always find advice from a broker or take a course in finding good stock options, in the beginning.