By Contributing Author
Calculating the earnings per share of a stock; commonly referred to as EPS (earning per stock) and is the most important things a company or a trader can possibly do if they wish to remain what they are as EPS directly calculated the profits made. In this article, we will be learning how to Calculate EPS but you would need a few essential information such as gross profit, share value ( both current and new ), buy in price and sell price.
To calculate the gross profit which, is essential to the calculations you must subtract the current value of your stock portfolio (i.e. the current value of your shares that you want to calculate the EPS for) minus the buy in price ( the old value of the shares ). This would give you your gross profit. The formulae for this would look like this:
gross profit = current stock value – initial investment.
- Calculating the gross profit per stock
For this you will need the gross profit made from your stocks and the number of shares you bought originally as your initial investment. This is one of the simplest, least complex and quickest calculations that gives you an answer by the simple maths principle of dividing profit over the number of shares in this simple calculation:
Gross EPS=gross profit number of shares
This equation does have a flaw however as it doesn’t take into account any extra incurred fees such as transaction fees into the profits made per share as these fees which can range from three pounds ( GBP ) onwards can affect the value output of the equations. This would mean that it would give you an impression that would earn more than you are. This would be the wrong calculation if you are doing this for tax reasons as it would show a higher earning. If you are doing this calculation for tax reasons, I suggest using this calculation:
Net EPS = gross profit -fees and expenses number of shares
Please, not that gross profit minus and fees and expenses is referred to as net profit and is the gross profit minus any expenses. Using this formula would give you and more accurate depiction to what your actual earnings would be as it considers your total initial investment compared to only just the capital investment in purchasing shares.
- Weighted EPS calculations
This formula is even more accurate than the Net EPS calculation as it also considers of the lost dividend; dividend being the payment of which, is the small payment that the company or companies of which you own shares of, pay you for just owning the shares of the company. When you shell the shares of the company off you don’t earn the dividend which, is equal to lost profit. To calculate the weighted EPS, you would need the gross profit as mentioned previously with the formulae:
NET profit= gross – expenses
And you’ll also need to find the dividend payment for the time period of which you are selling the shares. To find this you’ll usually need to go online to either the company’s website or the trading site that you are on and it would demonstrate the dividend there. This will take some time however as you would have to sift through usually a document which, is thoroughly boring and quite long. This Is why this calculation is some times less used as its very time consuming to calculate the dividend and sometimes its not worth it time wise to so some companies or trades choose just to use the net EPS calculations on their tax form as its simpler and doesn’t require a large amount of time which could be better utilised elsewhere.
Once the dividend (usually per share) is found you would find the total dividend lost which is calculated via this formula.
Total lost dividend = dividend value (at the time of sale) X number of shares.
Please note that the formulae are interchangeable and does not need to follow the strict order of the equation above with number of shares and dividend values exchange able.
The complete equation should look like this:
Weighted EPS=net profit – dividend number of shares bought
- Percentage yield
This is also another simple and basic calculation and is perfect for calculating the percentage increase over the last quarter and usually used in graphical representations of profit. To calculate percentage yield is a simple process of dividing the new value over old in this formula.
Percentage yield =(new value ~(of share)initial investment x 100)-100
The percentage of given from the calculation above will give you the total amount of times that you have made back on your investment. For example, if you had a reading of fifty percent and you had an initial investment of a thousand pounds your new balance would be one thousand and five hundred pounds (a fifty percent profit).
The equation doesn’t directly show the EPS as it shows a collective value for the total gain as a percentage indicating the amount of times over the initial value per one hundred percent. (one hundred is equal to one and therefore fifty percent is equal to half the initial amount). However, there is a way to find the gross EPS by simply dividing the percentage with the number of shares. In this equation:
Gross percentage per share=
With this equation you find the gross profit you make per share and the equation non reworkable and must not be altered. With the gross percentage yield per share you can calculate the profit made if you had the value of original share.
This would be done by setting the value of the original share to being equal to one hundred minus the gross percentage per share. Then you must divide the price of the original share by the value of one hundred minus the GPS (gross percentage per share) and times the value by one hundred. Finally, take the given value and subtract it from the value of the initial investment and that would be you gross EPS. This method is only really used if you want the percentage data for graphical representation or just a quick and easy to find statistic as it involves a lot of maths to find the EPS in which an error may occur. A worked example with one thousand shares at one pound with a fifty percent increase and a one-pound initial value with one pound fifty current value will be shown below.
- = 0.05
- (100÷ 99.5) x 100 = 100.05
- 100.05-100= 0.50p
- 50000p profit (£500 )
- Please note that pounds to pence conversion was used in this in the second step.
You now know three different methods to calculate EPS if you would like to learn a different method simply click on this link above which will teach you also How to Calculate EPS. But good luck trying to calculate it and mat you will not be bored whilst doing so.