Earnings Per Share (EPS)
Categories: Accounting, Investing, Stocks
Imagine a lemonade stand. 20 grand in sales and 16 grand in gross profits. And yeah, we’ll spare you the “gross” jokes. The customer asked the lemonade-ista what the fly was doing in his lemonade, and yes, of course she said "the backstroke."
After gross profits on the income statement, there are operating expenses...and then operating profits. Then there are taxes. Yeah, there are always taxes. And then finally net income, a.k.a. earnings. But then, below earnings, you’ll see that there are a hundred shares in this little company.
The founder owns 60 of them. Mom owns 10. The new step-dad owns 20. He was guilted into it by the divorce lawyer. And Enrique the gardener, who has cleverly weaseled his way into the family’s hearts and minds, owns the last 10. It’s annual report time, and the investors want to know what their earnings per share were...so that they can all compare relative performance on their investments.
So...the total earnings of the company was $5,250. Which means that the earnings per share were that 5,250 figure divided by 100...or $52.50. That’s what each share earned if you divvied the company into 100 little pie slices, or parts. So yeah…earnings per share equals earnings per slice o’ pie.
Wait—“lemonade pie”…has that been done yet? Hm…time for a new business venture…