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Basic earnings per share

Basic Earnings Per Share

Basic Earnings Per Share (EPS) is a financial metric that calculates the portion of a company’s profit allocated to each outstanding share of common stock. It is a widely used indicator of a company's profitability and is calculated by dividing the net income attributable to common shareholders by the weighted average number of shares outstanding during the period. Basic EPS does not account for the potential dilution from securities like stock options or convertible bonds, making it a straightforward measure of profitability for current shareholders.

Example

If a company has a net income of $1 million and 500,000 shares outstanding, the basic EPS would be $2 per share.

Key points

• Measures the profit allocated to each outstanding share of common stock.

• Calculated by dividing net income by the weighted average number of shares.

• Does not consider potential dilution from convertible securities.

Quick Answers to Curious Questions

Why is Basic EPS important for investors?

It helps investors understand how much profit is being earned for each share they own, which is crucial for assessing the value of their investment.

How is Basic EPS calculated?

By dividing the company’s net income by the weighted average number of outstanding shares.

What is the difference between Basic EPS and Diluted EPS?

Basic EPS does not account for the potential dilution from convertible securities, while Diluted EPS does.

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