Formula of Earnings Per Share Ratio:
The formula of earnings per share is:
Earnings per share (EPS) Ratio = (Net profit after tax − Preference dividend) / No. of equity shares (common shares)
Example:
Equity share capital ($1): $1,000,000; 9% Preference share capital: $500,000; Taxation rate: 50% of net profit; Net profit before tax: $400,000.
Calculate earnings per share ratio.
Calculation:
EPS = 1,55,000 / 10,000
= $15.50 per share.
Significance:
The earnings per share is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased.
The formula of earnings per share is:
Earnings per share (EPS) Ratio = (Net profit after tax − Preference dividend) / No. of equity shares (common shares)
Example:
Equity share capital ($1): $1,000,000; 9% Preference share capital: $500,000; Taxation rate: 50% of net profit; Net profit before tax: $400,000.
Calculate earnings per share ratio.
Calculation:
EPS = 1,55,000 / 10,000
= $15.50 per share.
Significance:
The earnings per share is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased.
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