Beginner's guide to investing: earnings per share

By Deputy editor Tim Bennett Apr 21, 2011

Tim Bennett

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Tim Bennett explains 'earnings per share' - a vital number for investors which can give you an idea of a company's performance over time.

• See also: A beginner's guide to the price/earnings ratio

And watch all of Tim's video tutorials here

Earnings per share

Earnings per share is seen as one of the best means of determining a share's true price, as it shows how much of a firm's profits (after tax) each shareholder owns. It is calculated by dividing a company's net earnings by the number of shares issued, and is most often used as a means of comparing one company with another, assuming that they are in the same industry. So if a company had net earnings of £1,000 with 200 shares issued, it would have an EPS of 5. By looking at the EPS over several years you can look for a growth pattern and compare it with the market and industry.

• Entry from MoneyWeek's Financial glossary.

Comments (28)

Published in Video tutorials | More articles by Tim Bennett

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  • 1. simonc

    (09 October 2010, 10:42AM)  Complain about this comment

    Is Dividend Cover next?

    On the home page it looks exactly the same as the last one, so I almost missed it.

    Has the hair got spikier?

  • 2. Hugh Strafford

    (09 October 2010, 11:04AM)  Complain about this comment

    Clearly presented. Many thanks.

  • 3. Peter

    (09 October 2010, 11:23AM)  Complain about this comment

    My 25 year old daughter came home last night for the weekend. She wanted to have a chat with me about "her finances". She wants to start saving regularly into a share ISA. I was showing her my SIPP and ISA statements and trying to explain the meaning of 'yield'.
    First thing this morning I check my Money Week review and find this clip. It is excellent and has every prospect of gaining 'cult' status. Please keep it going.It is also good to be able to see that Tim Bennett is not just a name on the page. Congratulations, brilliant.

  • 4. Bernie Davies

    (09 October 2010, 12:26PM)  Complain about this comment

    Thanks for the two videos Tim,much appreciate the simple,clear style.
    Hope these are the start of many topics in the investment field as you make it interesting,simple and concise.Don't change the format.
    Regards
    Bernie Davies

  • 5. Tagware

    (09 October 2010, 03:06PM)  Complain about this comment

    Hi

    You need to mic the person speaking rather than allow the room dynamics to echo around the person. This will also stop background noise causing low playback volume.

    Regards

  • 6. Barry

    (09 October 2010, 04:17PM)  Complain about this comment

    I agree with an earlier comment that the playback volume is a little low. However all in all, I found this to be a very useful & well presented. Thankyou!

  • 7. johnnie

    (09 October 2010, 07:17PM)  Complain about this comment

    I am confused! I follow that the yield for United Utilities is 5.1% (and that is what my paper says it is) but when I try to use Tim's method for calculating the P/E ratio( i.e. 5.8÷0.3) it comes out at 19.3. My paper, however, says it is 9.9. Equally, I follow the calculation for Tesco's P/E ratio at 14 and my paper agrees. But when I use Tim's method for calculating the yield (i.e 0.3÷4.2) the answer is 7.1%, whereas the paper says it is actually 3.1% and I know for a fact that 3.1% is correct. I realise that it will be hugely embarrassing but I would be grateful if someone could be kind enough to tell me where I am going wrong!
    Best regards
    Johnnie

  • 8. john

    (10 October 2010, 12:11PM)  Complain about this comment

    hi

    thoroughly enjoyed the second presentation. clear concise and interesting.

    thankyou

  • 9. James Edgerton

    (10 October 2010, 12:15PM)  Complain about this comment

    Very clear. Thanks.

  • 10. Malcolm

    (10 October 2010, 06:15PM)  Complain about this comment

    Didn't get to see his first presentation. Is it still available anywhere? (if so please tell me where).

    Good clear presentation, and the format & whiteboard usage is good, though sound volume & quality could be improved.

    Looking forward to more like this. V. interesting and clear.

  • 11. Tim Bennett

    (11 October 2010, 04:54PM)  Complain about this comment

    Malcolm - you should be able to find the other video under the heading "a beginner's guide to the p/e ratio". There is a link a bit further down the page.

  • 12. Tim Bennett

    (11 October 2010, 05:15PM)  Complain about this comment

    Johnnie - on Tesco, if you take the share price just now - market close Monday - of £4.39 and divide by earnings per share for the financial year ended 27th February 2010 of 32p you get a p/e ratio of just under 14. Take the dividend for the full year ending 27th February 2010 of 13p and divide by the same share price (13/439) and the yield comes out at just under 3%. As for United Utilities, take the current share price of £5.87 and divide by eps for the year ended 31st March 2010 of 59p and you get a p/e ratio of just under 10. Take the dividend per share for the same year of 34p and divide by a share price of 587p and the yield comes out at just under 5.8%. Hope this helps!

  • 13. Dariko

    (11 October 2010, 10:21PM)  Complain about this comment

    Thumbs up for clarity of picture and information.
    More video topics will help.

  • 14. Tim Bennett

    (12 October 2010, 09:03AM)  Complain about this comment

    Simon - thanks for the suggestion (and the observation!)...dividend cover will indeed be coming up soon.

  • 15. Johnnie

    (12 October 2010, 03:59PM)  Complain about this comment

    Tim - many thanks! So there is a difference between earnings per share (Tesco, 32p for the full year) and the dividend (Tesco, 13p for the full year). If you can spare the time please explain what this difference is and where one can find such information.

    Best regards
    Johnnie


  • 16. tim Bennett

    (12 October 2010, 04:22PM)  Complain about this comment

    Johnnie - yes, earnings per share is the full profit for the year divided by the number of shares in issue. Here 32p. The dividend is just the bit that the directors have chosen to pay to shareholders - here 13p. The rest is "retained" in the business for the future. EPS figures are published at the foot of a profit and loss account in the main financial statements. You can also pick up this information on sites such as digitallook.com or by going to the shareholders bit of the Tesco website (Investors Centre/financials/financial highlights). Hope this helps.

  • 17. Johnnie

    (12 October 2010, 06:31PM)  Complain about this comment

    Tim - all is now clear as daylight! Thank you so much and I am looking forward to more of your truly excellent 'beginner's guides'.

    Best regards
    Johnnie

  • 18. Barry

    (14 October 2010, 04:56AM)  Complain about this comment

    Thanks. Excellent Presentation. Keep it going and keep the format the same.

  • 19. Tom O'Neill

    (15 October 2010, 12:49PM)  Complain about this comment

    Excellent - good crisp delivery, very clear and concise presentation. Closer mic needed though, and a drier ambient acoustic.
    I hope these tutorials will stay on the website for some time - they're very useful to refer back to.

  • 20. Tony Akram

    (15 October 2010, 09:15PM)  Complain about this comment



    Hi Tim

    Excellent very clear and simple . Hope you do more especially on debt ie was told not to invest in a company whose debt was more than 3 x pre tax profits.

    Would appreciate your general thoughts

    Thanks

    Tony

  • 21. Steve E

    (16 October 2010, 03:48PM)  Complain about this comment

    Very good Tim. Clear. Concise. Nice easy pace. Wonderfully "old-fashioned" - that's a compliment. No whizzy graphics and silly music, cuts and angle changes - nothing that get's in the way of what you want to get across. Many thanks. Steve

  • 22. Listener

    (18 October 2010, 10:27AM)  Complain about this comment

    An excellent series of videos clearly and concisely delivered. Very informative. Thank you very much.

  • 23. Carole

    (23 October 2010, 03:50PM)  Complain about this comment

    I have just watched all the videos and find them very clear and easy to understand. Very good presentation too - not at all condescending or patronising to the absolute beginners amongst us.
    Thank you very much and keep them coming.

    Carole

  • 24. Andy

    (27 October 2010, 01:00PM)  Complain about this comment

    Very useful Tim, thanks very much for your clear and concise presentation.

  • 25. RB

    (16 November 2010, 04:18PM)  Complain about this comment

    Hi Johnnie - bookmark this site, useful explanation on the terms and how they are worked out... roughly speaking EPS is the total net profit of the company divided by the number of shares in issue... Dividend payments only use a proportion of the net profits fund pot (decided by management) divided by the number of shares.

    http://www.sharemarketbasics.com/Terms/index.php

  • 26. Steve

    (01 May 2011, 05:12PM)  Complain about this comment

    Another great vid, thanks guys. Will you be posting all of the latest vids on the youtube channel?

  • 27. leo

    (01 June 2011, 10:33PM)  Complain about this comment

    Tim
    u manage to just say enough on each subject and at a speed that gives the amateur mind time to assimilate before being hit with the following fact ...have only seen one other presenter in the past 40 years to equal your performance . very much appreciated...more ...more

  • 28. Simon Andi

    (09 December 2011, 05:23PM)  Complain about this comment

    Tim Hi,

    Great videos - there are so many website quoting fundermentals yet most quote different P/E P/B P/S what website can I use to give me
    accurate latesr stock company fundermental data please?

    Simon

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