Calculating earnings per share (EPS) allows us to understand how much dollars were earned on each outstanding share of common stock.
In summary, in order to find earnings per share (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.
Earnings per Share (EPS) = Earnings Available for Common Stockholders/ 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. Earnings available for common stockholders are calculated as follows:
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
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