Earnings Per Share

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The Earnings per share or EPS is simply the amount the company is worth per share of stock. It is calculated knowing the net earnings and the price of a stock.

The Earnings per share is found by using the formula EPS= Net Income/Number of shares. For instance if the company had an income of $50 million and has 20 million shares the EPS would be $50 mil/20 mil or 2.5.

This is considered the most important way to determine the price of a stock according to fundamental analysis. It is also the key to determining the PE ratio which can tell if a stock is overpriced or underpriced.

One thing you should remember is that the number of shares can change over time. Because of this it is important to take the average amount of shares when trying to determine the EPS.