# EPS Full Form

EPS Full Form-What Is The Purpose of EPS? Earnings per share can be defined as that share of a company’s profit that is distributed to each share of stocks.

EPS Full Form

 Earnings Per Share

### Why is EPS important?

In case of a company, EPS indicates the profits earned over and above the cost of capital (capex + working capital), while what we should consider is "normal" EPS. The figure is computed as follows: Therefore, if the company is earning a higher EPS than normal (although well below the level of cost of capital) this is considered a good thing. The company can fund its operations without taking on additional debt or without raising new capital (at least, at current valuations). In other words, a higher EPS usually indicates the company has better free cash flow generation. Also, this is a measure that can be used to compare the profit of different companies.

### How EPS is calculated?

The official definition of earnings per share, or EPS, is as follows: EPS = earnings for the last four quarters / [Profit per share for the previous 4 quarters] x 4 Where EPS = net income / [Profit per share for the previous 4 quarters] Earnings per share refers to how much profit a company is making in a year, often expressed in dollars. How to calculate EPS Gross profits are the total earnings of a company before interest and taxes. Interest and tax payments are considered in the form of taxes on profits, known as corporate taxes. Note: For advanced technical explanation of EPS, please refer to this question & answer. The EPS of a company is calculated by adding up the revenue and the profit, divided by the number of outstanding shares.

### How EPS is used?

Earnings per share helps investors track and analyze the trend and changes in earnings per share. The widely used method for calculating EPS is to compare a company's net income to its average cost of capital (which is the weighted average cost of capital of the different capital invested into the company). When calculating the cost of capital, we calculate a company's cost of capital by dividing its weighted average cost of capital by its weighted average earnings before interest and taxes (EBIT).

### What is P/E ratio?

This ratio is used to analyze the value of a company. It is the ratio of the current share price of a company, to its per-share earnings (which is the average earnings per share for the last twelve months)