As the name suggests earnings per share shows how much money each share is making. There are lots of different types of shares; this ratio only includes the number of ordinary shares that the company has authorised.
Calculating Earnings Per Share
To calculate the earnings per share you will need to find out the number of ordinary shares that have been issued and the net profit after tax for the firm. Divide the net profit after tax by the number of ordinary shares to obtain the earnings per share.
Earnings per Net profit after tax
Share = _________
Number of ordinary shares
For example if a firm’s net profit after tax is £10000 and they have 20000 ordinary shareholders earnings per share would be calculated as follows:
Earnings per £10000
Share = _________ = £0.50
As earnings per share are usually expressed in pence in our example the earnings per share is 50p