Knowledge Seeker

What is Earnings Per Share EPS

One of the objectives of the firm/company is
wealth/value maximization, of the stake of various stakeholders. The value is
maximized when the market price of equity shares increases. The market price
of equity shares is a function of the present and future earning potential of the
firm. An appropriate and operationally feasible way to measure value
maximization is to measure Earning Per Share (EPS).The EPS is one of the
important measures of economic performance of an economic entity. A higher
EPS among the comparable firms means a better capital productivity.


EPS =Net profit after tax and preference dividend / No of equity shares

1* EPS when debt and equity is used:

(EBIT -I) (I -T)/N

2* EPS when debt equity and preference shares are used:

(EBIT-I)(I-T)-preference dividend / N

EBIT = Earning before Interest and Taxes

I = Interest

Dp= Preference Dividend

N = Number of Equity Shares

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