# How is the earnings per share (EPS) calculated?

Q18. Earnings per share (EPS)
How is the earnings per share (EPS) calculated?

A18.
Earnings per share (EPS) = (A) / (B)
Where,
(A) = Net income for common stockholders
= Net income – Dividends to preferred stockholders
(B) = Weighted average number of common shares outstanding

[Fiscal year 20×1]
Net income = \$320,000
Dividends to preferred stockholders = \$50,000
Net income for common stockholders
= \$320,000 – \$50,000 = \$270,000
Weighted average number of common shares outstanding = 200,000
Earnings per share (EPS)
= (\$320,000 – \$50,000) / 200,000 shares
= \$270,000 / 200,000 shares = \$1.35 per share

[Fiscal year 20×2]
Net income = \$210,000
Dividends to preferred stockholders = \$50,000
Net income for common stockholders
= \$210,000 – \$50,000 = \$160,000
Weighted average number of common shares outstanding = 100,000
Earnings per share (EPS)
= (\$210,000 – \$50,000) / 100,000 shares
= \$160,000 / 100,000 shares = \$1.60 per share

[Note]
Fiscal year 20×2 was more profitable than fiscal year 20×1.