Question

Elaborate on EPS. How is it determined, is it the best indicator of value?

Mention 4 variables, which can manipulate it i.,e., either raise it , or decrease it

Answer 1

Earning per share is earning available for each common stock from company's profit.

If we deduct depreciation/amortization, interest expense,tax and preferential dividend from EBITDA, then we get the available earning for common stock holder. This amount need to be divided by total number of common share outstanding to get the value EPS.

We can't say any indicator as best, you need to see various indicator such as liquidity ratios, profitability ratios etc. to determine whether a company is good for investment or not.

4 Variables for manupulate EPS:

EPS can be manipulated by number of common stock outstanding. For a given profit, more the number of share lesser is EPS and vice versa.

More the preferential dividend/tax lesser will be EPS and vice versa.

More the interest expense or debt of the company lesser will be the EPS and vice versa.

Revenue/Sales is directly proportional to the EPS.