Earnings Per Share Explained | Phil Town

TL;DR

Earnings per share (EPS) is a key measurement of a company's profitability, calculated as net income divided by the number of outstanding shares. It is important to consider EPS growth over time, as well as compare it to cash flow, to accurately evaluate a company's performance.

Transcript

hi you guys I'm Phil town from rule 1 investing and today I want to talk to you about a little bit of Wall Street gibberish called earnings per share now in order to become a successful investor it's important to thoroughly familiarize yourself with a few investment basics one of the basics you've probably heard it before it's called earnings per s... Read More

Key Insights

• 🤑 EPS is a crucial measure of a company's profitability, indicating how much money it makes for each share.
• ⌛ Evaluating EPS growth over time helps assess a company's growth potential.
• 💐 Comparing EPS to cash flow is important to ensure the accuracy and integrity of earnings reporting.
• 💄 Companies can manipulate EPS using accrual accounting and other tactics, making it important to consider other financial metrics.
• 💐 Investors should consider both earnings and cash flow when evaluating a company's performance.
• 🍉 EPS is widely used and reported each quarter, influencing short-term movements in a company's stock.
• ❓ Buying back shares can increase EPS, while share dilution can decrease it.

Questions & Answers

Q: What is earnings per share (EPS) and why is it important?

EPS is a measurement of a company's profitability, showing how much money it makes for each outstanding share. It is important because it helps investors evaluate a company's financial performance and growth potential.

Q: How is earnings per share calculated?

EPS is calculated by dividing a company's net income by the average outstanding shares. However, using the current outstanding shares can also provide a fairly accurate measurement.

Q: Why is evaluating EPS growth over time important for investors?

Examining EPS growth over time helps investors understand how fast a company is growing. Steadily increasing EPS from quarter to quarter indicates consistent and steady growth, making it an attractive investment opportunity.

Q: How does earnings per share (EPS) relate to cash flow?

Comparing EPS to cash flow helps determine if a company is manipulating its earnings per share. It is important to consider both earnings and cash flow to get a comprehensive understanding of a company's financial health.

Summary & Key Takeaways

• Earnings per share (EPS) is a company's net income divided by its outstanding shares and is a crucial measure of profitability.

• EPS is reported quarterly and can be positive if the company is profitable or negative if it loses money.

• Evaluating EPS growth and comparing it to cash flow provides a more accurate assessment of a company's performance.