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  • Wednesday, October, 2019| Today's Market | Current Time: 02:53:44
  • Calculating the earnings per share of a stock; commonly referred to as EPS (earning per stock) and is the most important things a company or a trader can possibly do if they wish to remain a profitable company as EPS directly calculated the profits made and the value of your company per share and to do so you would need the EPS formula . In this article we will be learning what the EPS formulae means as it’s the single most important formulae a business or sole trader can have when calculating information needed for tax and growth reports.

    The formula for weighted EPS are:

    Weighted EPS=

    A weighted EPS calculation is a very important calculation for calculating the profit made by your firm or company to judge the correct and appropriate pricing of your companies share value which you are selling to your investors. The value of your shares can also help approximate the value of your company as a higher value would signify a trend in growth which, is what a company wants as it would also show financial growth and increased profit in the company. The ratio of profit to preferred dividend to number or shares is an important key factor to determining the share value of a company due to the basic laws of maths seen in the equations above. There are other ways to calculate the EPS for other things also listed below, but they are used to calculate different things i.e. gross EPS, Net Eps and percentage yield. They are listed in order below:

    Gross EPS =  ( profit earned )

    Net EPS=   ( profit earned ) 

    Percentage yield=  X100= ANS   ( growth )

    ANS-100.

    These three formulas are good for a quick calculation but more suited towards figures for a quick graphical representation or for finding out how much money you have made during a period buying and selling shares. The weighted EPS is the most complex and helpful formulae when you are trying to figure out how much a company is worth, including yours and any other companies and in helping you find growth in a company.  The Weighted EPS formulae also takes into consideration any extra lost profit hence has greater accuracy with accuracy being of the utmost importance when releasing reports to you investors or declaring profit with sufficient evidence and detail to her majesty revenues and customs ( the tax man ) as you would want to keep every single penny of your hard earned profit . The down sides of the weighted EPS formula is that it is more difficult to calculate, more confusing hence taking more time to calculate. Fortunately, you’ll have this article to help you along the way and you’ll be the last person after me that will have to suffer by yourself to figure it out.

    Net profit is the total profits after expenses are calculated and subtracted from the gross profit (total profit) to give you your actual profit as any expenses are deducted making the figure the actual amount you company shall receive during the fiscal year and is what  should be on your tax form as the amount that is taxed on.

    Net profit = gross profit (total profit) – expenses (staff pay, bills such as utility’s e.c.t.)

    The preferred dividend is different form the standard dividend; with dividend in general being simply the (usually small) amounts of cash which a company pays per fiscal season of pays to their shareholders annually or quarterly for every share they own. The value of the dividend can usually be found in the company’s annual shareholder report. However, not all shares are equal with preferred shares receiving the preferred dividend instead which the company pays out to those shareholders who holds preferred shares only. The preferred dividend must be paid regardless if the company is struggling to do so. This is a major risk to a company of they are struggling hence, it must be accounted for as it could possibly bankrupt a struggling company and make their shares worthless. To calculate the preferred dividend, use this formula:

    Preferred dividend= Dividend X number of preferred shares

    Calculating the Weighted average common shares is the hardest and most complex bit of the equation as it involves the most work and good tracking of the companies past sales of shares (number of). The number of shares is equal to the number of shares sold during a specific time period and those that continued as being sold and not bought back. The weighted average is calculated by that number of months of which that number of shares is held constant for divided by the number of months in a year. Please note that the number of shares sold isn’t constant and can vary so for every time you have a different number of outstanding shares you must carry out a new calculation. This step is done as having for example one hundred thousand outstanding shares for an entire year (which is equal to one hundred thousand times by  i.e. times one) and every share must be equal to having another number of the same shares but for a different time period and quantity ( shares have to hold the same value ). Therefore, if you had fifty thousand shares outstanding for half a year it must be equal to twenty-five thousand shares for an entire year as you would time all the shares by a set constant which is the number of months the shares are outstanding divided by twelve. in addition to that a ten percent safety factor must also be included to ensure you art risking paying too much or too little to adjust for factors such as sudden fluctuations in number of outstanding shares and current market fluctuations. An example of the calculation is this.

     

    •         July to august- Five thousand shares outstanding
    •         August to October – Seven thousand shares outstanding

    Calculations

    5000 X + 7000 X  = 1583.3

    10% = 158.33

    1583.3 + 158.33= 1741.63

    Which would mean that your weighted average common shares are 1742 (rounded) and that is all the bits you need to know to carry out a weighted EPS calculation. Congratulations!

     

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