The net income available to common stock, divided by the sum of the weighted average common shares and common stock equivalents is called primary earning per share (EPS). Primary earning per share is calculated by dividing net income available to common shareholders by the weighted average number of common shares plus all those dilutive securities that meet the definition or a common stock equivalent. A common stock equivalent is dilutive security that because of the terms or circumstances at the time of its issue is essentially equivalent to common stock. Useful Link: Wesley Financial Group, LLC Reviews That is, a common stock equivalent is not common stock per se, but it does allow the holder to become a common stockholder at some future date. Therefore, the market value of the common stock equivalent tends to vary in relation to the common stock to which it is related. Because these securities so closely resemble common stock, they are treated as common stock in the EPS calculation. Thus, the formula to calculate primary EPS is:Primary Earning per Share (EPS) - Definition
How to Calculate Primary Earning per Share (EPS)?
Formula to Calculate Primary EPS
Primary Earning per Share (EPS) FAQs
Primary Earning per Share, also known as EPS, is an accounting measure of how much a company generates in terms of earnings for each ordinary share of its stock. It takes the total amount of income available to the shareholders and divides it by the number of outstanding shares.
The calculation for Primary EPS is the total net income of a company available to shareholders, minus any preferred dividends, divided by the number of outstanding common shares.
Factors that can affect the primary EPS include changes in profitability, changes in the number of outstanding shares, and other factors such as taxes or operating costs.
The interpretation of a good primary EPS depends on the company’s industry, size, and other financial metrics. Generally, the higher the primary EPS, the more profitable a company is relative to its competitors.
One advantage of using primary EPS is that it can provide investors with an easy way to compare profitability between companies in similar industries. It can also be used as a measure to track the performance of a company over time.
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