How to Compute Earnings per Share Using Financial Statements

Earnings per share measures the amount of profits allocatable to each common share. The higher the earnings per share, the more profitable the company. Each year, public companies must release financial statements so that investors can make intelligent investment decisions. Included in these financial statements is everything you need as a potential investor to calculate the earnings per share, including preferred and common shares outstanding, preferred share dividends and net income.

Instructions

1. Multiply the preferred shares outstanding by the dividends paid per preferred share to calculate the total preferred share dividends. For example, if the company has 30,000 preferred shares outstanding and pays a preferred dividend of $3.40, the total preferred share dividends equal $102,000.

2. Subtract the preferred share dividends from the company's net profits for the year to find the earnings available to common shareholders. In this example, if the company had $904,000 in total profits, subtract $102,000 from $904,000 to find the company has $802,000 in earnings available to common shareholders.

3. Divide the earnings available to common shareholders by the number of common shares outstanding to find the earnings per share. Completing this example, if the company has 650,000 shares outstanding, divide $802,00 by 650,000 to get $1.23 earnings per share.

References

• University of Georgia: How to Read a Financial Statement
• Securities and Exchange Commission: Beginners' Guide to Financial Statements