How to Calculate Basic Earning Per Share

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Basic earnings per share, abbreviated EPS, represents the amount of the company's profit for the year that goes to each share. The earnings per share is a good measure of the amount of profit being generated by a company. However, the earnings per share calculation does not take into consideration the size of the investment to generate those earnings. For example, two companies might have \$5 earnings per share, but one company might have shares costing \$20 and the other might have shares costing \$500.

Look up the company's net income, preferred dividends and average outstanding shares in the company's annual report.

Subtract the preferred dividends paid from the net income. For example, if the company has \$100 million in net income but pays \$8 million in preferred dividends, subtract \$8 million from \$100 million to get \$92 million.

Divide the company's net income minus preferred dividends by the average number of outstanding shares to find the earnings per share. Completing the example, if the company has 30 million shares outstanding, divide \$92 million by 30 million to get \$3.07 per share.