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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