1. The market makes prediction about your profit
2. Your quarter report date comes up
3. You take your companies profits for that quarter
4. You divide them by all the common stock out in the world
5. You come up with a number that is either positive or negative
6. The market freaks over your number beating or falling behind estimates #dontpanic
Let us piece this together
You are in charge of earnings for your company, and your quarterly earnings date is coming up. The news and analyst make predictions about your profits and everyone is anticipating your report. You take your companies profits for that quarter and divide them by all the common stock out in the world. This gives you your earnings per a share. You now go out and release this information to the public and they react based on if you beat or fell behind their estimates.
What is Earnings Per Share?
Earnings Per Share is an important metric that is used by market analysis to understand the profitability of a company as well as breaks down other metrics such as Price to earnings ratio. This number is often an indicator of what is to come of the company and determines if the stock is on track to earn what the analyst thinks it will earn.
Why do we care?
• This number sways the stock price up and down
• When the company earnings are increasing it means the company is doing well
• When the company earnings are decreasing it means the company is declining in profit
• Often companies will buy back stock to inflate the number, this will often create an illusion that a company is doing better than it is
Overall earnings per share is a great metric to look for and guide the health of a company every quarter, but it is recommended to look over more metrics than just the EPS to determine the health of a company.