To calculate EPS allows us to understand how much dollars were earned on each outstanding shares of common stock.
In summary, in order to find EPS, we need to take earnings available for common stockholders (the bottom line of the income statement ) and divide it by number of shares of common stock outstanding.
Therefore, in order to determine EPS (earnings per share), we need to know earnings available for common stockholders.
LESS: Cost of goods sold
= Gross profit
LESS: Operating expenses
= EBIT (earnings before interest and tax/operating profit)
= Net profit before tax
= Net profit after tax
LESS: Preferred stock dividends
= Earnings available for common stockholders
In other words, to find EPS we need to use the formula:
EPS = Earnings Available for Common Stockholders/ Number of Shares of Common Stock Outstanding.