# Earnings Per Share (EPS) Ratio

### Reviewed by Subject Matter Experts

Updated on February 20, 2023

The earnings per share (EPS) ratio is effectively a restatement of the return on equity (ROE) ratio.

While the ROE ratio is calculated as a percentage, taking total net profit and total equity into consideration, the EPS ratio shows how much profit has been earned by each ordinary share (common share) in the year.

## Formula

Net profit attributable to ordinary (common) shares is arrived at by deducting corporation tax and preference dividend from the amount of net profit earned in any particular year.

## Example

The following information was extracted from the balance sheet of John Trading Concern at the end of a financial year:

• Profit before tax: \$480,000
• Corporate tax: 50%
• Ordinary share capital: 800,000 (80,000 ordinary shares at \$10 each)

Required: Calculate John Trading Concern's earnings per share (EPS) ratio.

## Solution

Earnings per share (EPS) ratio = \$224,000*/80,000 shares

= 2.8

* Net profit attributable to ordinary shareholders = 480,000 - 240,000 - 16,000

= \$224,000

## Interpretation

The earnings per share (EPS) ratio is 2.8. This means that each ordinary share (common share) of the company earns \$2.80 during the period.