ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Earnings per share (EPS) is calculated by subtracting preferred dividends from net income and dividing that amount by the number of common shares outstanding.

Detailed explanation-2: -If a company has an EPS of $5.00 in 2008 and EPS of $6.00 in 2009, the company has an EPS growth rate of $6.00/$5.00-1 = 20% during fiscal year 2009. YCharts calculates as (EPS this quarter) / (EPS four quarters ago)-1 for each quarter in our system.

Detailed explanation-3: -EPS indicates how much money a company makes for each share of its stock and is a widely used metric for estimating corporate value. A higher EPS indicates greater value because investors will pay more for a company’s shares if they think the company has higher profits relative to its share price.

Detailed explanation-4: -In essence, the price-to-earnings ratio indicates the dollar amount an investor can expect to invest in a company in order to receive $1 of that company’s earnings. This is why the P/E is sometimes referred to as the price multiple because it shows how much investors are willing to pay per dollar of earnings.