Profitability Analysis: Basic EPS

Basic Earnings per Share (BEPS): Assessing Profitability per Share

Introduction

Financial statement analysis is like looking at a report card for a company to see how well it is doing. One important thing we can learn from this report card is how much money a company made for each share of stock that people own. This section will explain what that means and why it's important.

Understanding Basic Earnings per Share

Basic Earnings per Share (BEPS) tells us how much money a company made for each share of stock that people own. It's like if you had a cake and wanted to know how much each person would get if you divided it equally. To find BEPS, we look at how much money the company made and divide it by the number of shares of stock.

BEPS = (Money the company made) / (Number of shares of stock)

What BEPS Tells Us

BEPS helps us understand if a company is making a lot of money for each share of stock or not. If the BEPS number is high, it means the company is making a good amount of money for each share. But if the BEPS number is low, it means the company is not making as much money for each share.

How BEPS is Calculated

We find BEPS by looking at two things:

Money the company made

We look at the total money the company made from selling products or providing services. We want to know how much money is left after they pay for things like workers' salaries and bills.

Number of shares of stock

We count how many pieces of the company's stock there are. It's like counting how many people are at a party. Sometimes we look at the average number of shares over a certain time, like a month.

Diluted Earnings per Share

Some companies have things that could change the number of shares and affect the BEPS. For example, they might have special options or things they can convert into more shares. When we adjust the BEPS to consider these things, it's called Diluted Earnings per Share (DEPS).

Things to Remember

When looking at BEPS, we should also think about how the company gives money to people who own the stock and how they get more money. Some companies have different ways of doing this, and it can affect the BEPS number. So, it's important to consider all these things when we compare different companies.

By understanding BEPS, we can get an idea of how well a company is doing and how much money it's making for each share of stock. This information can help investors and shareholders make smart decisions about their money.

This article takes inspiration from a lesson found in FIN 689 at Pace University.