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.

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