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Finance GlossaryEarnings Per Share
Earnings Per Share
Definition of Earnings Per Share
Earnings Per Share or EPS refers to the amount of profit that a company generates per outstanding share it has in the stock market. It is calculated by dividing the net income of a company by its shares outstanding.
Formula to calculate Earnings Per Share: Net Income / Number of Outsanding Shares
Generally, dividends distributed to preferred shareholders are deducted from the net income for EPS calculations. The EPS of a company can thus indicate whether or not it is generating enough profit. It can also be used as a valuation metric.
Formula to calculate Earnings Per Share: Net Income / Number of Outsanding Shares
Generally, dividends distributed to preferred shareholders are deducted from the net income for EPS calculations. The EPS of a company can thus indicate whether or not it is generating enough profit. It can also be used as a valuation metric.
Related Terms
Price-to-Sales (P/S) Ratio
The Price-to-Sales (P/S) Ratio is a valuation metric that divides a company's current market capitalisation by its total sales or revenue of the last twelve months. It is used to gauge the amount investors are willing to pay for every rupee of a company's revenue. This ratio is useful when looking at companies that are not yet profitable or have volatile earnings, because revenue is often less volatile and less susceptible to accounting manipulations than earnings are. A lower P/S ratio is often thought to be more favorable.
Cash Commodity
A cash commodity refers to physical goods like aluminium, cotton, gold, silver, zinc, and other tangible goods which are delivered to a trader or company most commonly after exercising derivatives like options and futures contracts.
Cash commodities are also known as actuals. A derivative contract for cash commodities will explicitly state the delivery date, price, and quantity. These details are necessary as some contracts may not involve the delivery of goods.
Cash commodities are also known as actuals. A derivative contract for cash commodities will explicitly state the delivery date, price, and quantity. These details are necessary as some contracts may not involve the delivery of goods.
Put Option
A put option is a contract that gives the buyer the right, but not the obligation, to sell a specified amount of an underlying security (like a stock) at a predetermined price (the strike price) on or before a specified date (the expiration date). Buyers of put options typically expect the price of the underlying asset to decline. Put options are used for speculation or for hedging a long position in the underlying asset.
Yield Curve
The yield curve is a graphical representation showing yields of bonds with different maturities. A normal upward-sloping yield curve indicates higher returns for long-term bonds, while an inverted yield curve, where short-term yields exceed long-term yields, often signals expectations of economic slowdown or recession.
Negative Working Capital
Negative Working Capital refers to a situation where a company’s short-term assets are lower than its short-term liabilities. This implies the business is using supplier credit or advance payments to run its operations. Although it may suggest cash pressure, in certain business models, it can reflect operational efficiency.
Stochastic Oscillator
The Stochastic oscillator is a momentum indicator used in technical analysis. Investors use this indicator to identify conditions where a stock may be overbought or oversold. It compares the closing price of a stock to its price range over a certain period. If the value is above 80, it indicates overbought conditions. If it is below 20, the conditions are considered oversold. The Stochastic oscillator helps investors identify potential reversals.
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