Earnings per share (EPS)
Earnings per share (EPS) is a way to track a corporation’s profitability. It is determined by taking net income and dividing it by the total number of outstanding shares. EPS is used to evaluate how well a company has performed and can also be referred to as “earnings power”.
A Scenario : Understanding Earnings per share (EPS)
Jane, as the CEO of XYZ Inc., a publicly traded company, has to take strategic decisions that increase shareholder value and manage its financial performance. To this end, she closely monitors the business’ EPS (Earnings per Share) as an important metric.
EPS is an essential financial ratio which gives an idea of how much profit a company makes on each share of its stock. It’s calculated by dividing the company’s net income by its total number of outstanding shares.
As Jane looked over the financials, she observed that the Earnings Per Share (EPS) had decreased compared to the previous quarter. This could be a cause for concern as it reflects that the company’s earnings are not progressing as they should be.
Jane convened her management team to tackle the issue at hand and assess potential resolutions. Through their deliberation, it was established that EPS had decreased owing to a mix of causes such as amplified costs and sales that were below projections.
In order to resolve the issue, Jane and her colleagues devised a plan to cut costs while also increasing sales. They employed cost-savings methods such as optimising operations and negotiating favourable prices with vendors. Additionally, they extended their scope by launching new products & entering new markets in order to push up sales figures.
After much hard work, Jane is delighted to see the company’s Earnings per Share (EPS) figure has improved. The tireless efforts to reduce expenses and grow revenues have proven successful and the company is now yielding a higher reward for every share in circulation.
In this scenario, we can see that EPS is an important metric for measuring a company’s financial performance and that addressing any issues with it is crucial for increasing shareholder value.
