What is Earnings Per Share for beginners?

Earnings Per Share or EPS is one of the most important indicators when it comes to measuring a company's profitability. Earnings per Share is calculated simply as a company's profit divided by their total outstanding shares. Thus, you can think of EPS as profit per share. You might be confused on how to use EPS when judging to buy a stock. Similar to any other indicator, you must use reference when evaluating a stock with an indicator. To analyze a stock using EPS, you must check whether its EPS is growing quarterly to see if the company is making more money. Different sectors of the market have different average EPS numbers. For example, if I was interested in purchasing Company A shares, I would need to weigh Company A's EPS against Company B and C's EPS which are in the same sector to figure out which company is making more money. If Company A has a higher EPS than Companies B and C and an EPS which is growing quarterly, it would be a good buy ONLY from looking at EPS. However, investing is not so one dimensional or simple as there are many other factors which affect a stock's performance. Conclusively, the higher the EPS, the better. 

 

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