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Earnings Per Share Growth
Earning per share (EPS) is also known as basic EPS. It is derived by dividing
the company’s earnings attributable to ordinary shareholders by the number
of shares. It measures the returns to the shareholder for every share invested.
Would you want your returns high? Sure, the higher EPS the better.
EPS = Net profits – Preference dividends (if any)
No. of shares issued
For example, company Z has RM100,000 profits for the year, and has 1 million
of outstanding shares. The EPS will be RM0.10 (100,000 divided by
1,000,000).
However, investors usually do not get all the earnings as dividends.
Company Z may or may not declare a dividend payout, depending on its
policies. It may declare a dividend payout of 3 cents per share and plough
back the rest of its profits into the business. Whatever the company chooses
to do, the EPS serves one important purpose: it tells you how well the
business is doing.
Earnings per Share Growth (EPS Growth)
Just compare the current year EPS and last year EPS, if there is a growth, it
means the current year earnings are better than previous year.
To ensure that the latest results of the company you own are not just a flash
in the pan, you must review the company’s earnings for the last three years.
While annual earnings are important, quarterly earnings are even more
imperative. Quarterly earnings reports reveal the latest sales and earnings
performance of the company. As an investor, you have to investigate further
if the reports show any signs of weakening in its profits.
However, if an initial public offering (IPO) doesn’t show a three-year
earnings record, look for the last six quarterly earnings reports instead.
Remember, one or two quarters of profitability is not enough, the stock is less
proven and might fall apart somewhere down the lane.
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