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How to Figure out the Earnings per Share on a Simple Income Statement

Original post by Mark Kennan of Demand Media

Earnings per share helps investors determine whether a stock is a good investment.

Publicly traded companies release a simple income statement to show investors the flow of money through the company for the year. The earnings-per-share metric measures how much each shareholder would receive if the company paid out all of its profits to its shareholders, keeping none for the company to use for reinvestment. If the income statement does not explicitly state the earnings per share, you can calculate the value based on other information provided in the income statement.

Step 1

Look up the company's net profits for the year, the dividends paid on the preferred stock and the number of outstanding shares.

Step 2

Subtract the required dividends paid on the preferred stock from the company's net profits to find the earnings available to common shares. For example, if the company had $33 million in net profits but paid $2 million in preferred share dividends, subtract $2 million from $33 million to get $31 million of earnings available to common shares.

Step 3

Divide the earnings available to common shares by the number of outstanding shares to find the earnings per share. In this example, if the company has 1.5 million shares outstanding, divide $33 million by 1.5 million shares to find the company has $22 in earnings per share.

                   

References

About the Author

Mark Kennan is a freelance writer specializing in finance-related articles. He has worked as a sports editor for "Ring-Tum Phi" and published articles on a number of online outlets. Kennan holds a Bachelor of Arts in history and politics from Washington and Lee University.

Photo Credits

  • Adam Gault/Digital Vision/Getty Images

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