investing guide

How Do You Calculate Earnings Per Share

earnings per share

So how do you calculate earnings per share?

To figure out a company's earnings per share (EPS) you simply take a company's after-tax profit divided by the company's outstanding shares.

An investor can usually find the EPS at the bottom of a company's income statement. The EPS can also be found on any number of financial websites.

If a companies earnings are going up then it makes sense that the stock price will also go up. Investors can compare earnings from previous quarters to figure out if earnings are going up.

Of course, a lot of this relies on corporations being honest and not "cooking the books."

Unfortunately, some companies will always have executives who lose their ethics, and will do anything to make their finances appear better than they really are.

This brings us to an important rule about investing. INVESTORS MUST UNDERSTAND HOW A COMPANY IS MAKING ITS MONEY. IF YOU DO NOT UNDERSTAND HOW THEY MAKE THEIR MONEY, THEN STAY AWAY.