Many times we hear analyst talk about looking into the EPS or earning per share of a company before investing into a particular stock. EPS that is earning per share can be calculated with the help of following formula – Profit after tax/Number of outstanding equity shares.
Most investors do a mistake of thinking that a low priced stock is better than a high priced stock, in simple words it is not necessary that a $10 stock is cheap than $100 stock. A detailed examination of EPS will make sure that investor make a right choice, suppose the EPS of $10 stock is $1 while EPS of $100 stock is $50 than it is better to buy $100 stock. EPS can be of following types –
1. Headline EPS – The headline EPS is the EPS number that is highlighted in the company’s press release when it gives result.
2. Trailing EPS – It is the EPS of previous year that is the actual EPS which company has generated for its shareholders.
3. Cash EPS – Cash EPS is operating cash flow divided by outstanding shares; it refers to the cash per equity share available with the company.
4. Rolling EPS – It includes EPS of previous 2 quarters and projected EPS of next 2 quarters.