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Message: EPS

EPS - easier to read!

in response to by
posted on Oct 31, 2007 05:38PM

I know that there are many people out there scratching their heads about what happened with HGS today, up 33%. Well, me too. No sales, non-functioning products, and so on. On the other hand we have significant sales and much more coming. I took a look at the sentiment ratings on stockhouse today and noted something else, EPS. Shocking, and just on this factor alone I know where I would put my money. Again, for the sake of comparison, not to bash or pump, here are the figures with links to the data source:

DYA EPS = - $0.04 

HGS EPS = - $0.22

Both show a net loss, but HGS show 5.5 times the loss per share. Updates after Q3 and Q4 will be very interesting!

Borrowed from investopedia.com:

 
The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability.

Calculated as:



In the EPS calculation, it is more accurate to use a weighted-average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.

Diluted EPS expands on the basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number.
 
 
 Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component of the price-to-earnings valuation ratio. 

For example, assume that a company has a net income of $25 million. If the company paid out $1 million in preferred dividends and had 10 million shares for one half of the year and 15 million shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from the net income to get $24 million. Then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M).

An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) - that company would be more efficient at using its capital to generate income and, all other things being equal, would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures.
 
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