**What is Earnings Per Share (EPS) of a Stock? (Value Investing for Beginners) — Transcript & Summary | SozAI**
Source: https://sozai.app/transcript/earnings-per-share-eps-stock-value-investing-beginners/

Learn what Earnings Per Share (EPS) means, how to calculate it using net income, preferred dividends and shares outstanding, and how to use it when evaluating stocks.

## Key Takeaways

- EPS = (Net income - preferred dividends) / shares outstanding, showing profit per common share.
- Higher EPS can signal better per-share profitability, but must be interpreted alongside other metrics.
- Changes in net income and share count (issuance or buybacks) are the two main drivers of EPS movement.
- Negative EPS does not necessarily mean a bad investment; the underlying reasons matter.

## What the video covers

- EPS measures the portion of a company's profit attributable to each common share, calculated as (net income minus preferred dividends) divided by shares outstanding.
- Preferred dividends are subtracted because preferred shareholders are paid first and their dividends are not available to common shareholders.
- Preferred stock gives priority on dividends and usually a fixed rate, but typically carries no voting rights, unlike common stock.
- EPS figures can be found on financial sites like Yahoo Finance, but data may be outdated, especially for smaller companies, so verification is advised.
- A worked example compares Company A (net income $5M, preferred dividends $200K, 1M shares, EPS $4.80) with Company B (net income $8M, preferred dividends $300K, 2M shares, EPS $3.85).
- A higher EPS can indicate greater per-share profitability even when another company has larger total profit.
- EPS alone is insufficient; investors should also consider revenue growth, debt levels, cash flow, and profit stability.
- Negative EPS signals a net loss, common in startups investing heavily, but must be analyzed in context rather than treated as automatically bad.
- EPS rises when net income increases or the share count falls (e.g., through buybacks), and falls when net income drops or new shares are issued.
- EPS is simple and useful for comparing companies in the same industry, but it ignores debt and future growth potential.

## Chapters

1. 00:00 Introduction to Earnings Per Share
2. 00:43 Understanding the EPS Formula
3. 01:29 What Are Preferred Dividends
4. 02:14 Finding EPS on Yahoo Finance
5. 03:18 Worked Example: Comparing Two Companies
6. 05:08 Limitations and Negative EPS
7. 06:23 What Makes EPS Change Over Time
8. 07:16 Pros, Cons and Final Tips

Answers

## Questions about this video

How is Earnings Per Share calculated?

EPS is calculated by subtracting preferred dividends from net income and dividing the result by the number of common shares outstanding. This gives the profit attributable to each common share.

Why are preferred dividends subtracted when calculating EPS?

Preferred shareholders are paid dividends first, so that money is not available to common shareholders. Subtracting it gives an accurate picture of the earnings belonging to common stockholders.

Is a negative EPS always a bad sign for an investment?

Not necessarily. Startups and growing companies often have negative EPS while investing heavily before becoming profitable. Investors should examine the reasons and look at revenue growth, cash flow, and debt levels.

## Full Transcript — Download SRT & Markdown

00:00

Speaker A

owning a share of stock means you're a legal part owner of a company, and as a part owner, you receive a portion of its profits. This concept is captured by a key financial metric known as earnings per share, or EPS.

00:12

Speaker A

EPS in today's video we're going to break down the EPS formula show you how to easily find this number in company reports illustrate simple examples to get a clear understanding explore what causes EPS to fluctuate over time and

00:27

Speaker A

In today's video, we're going to break down the EPS formula, show you how to easily find this number in company reports, illustrate simple examples to get a clear understanding, explore what causes EPS to fluctuate over time, and share some useful tips to keep in mind when using this metric to evaluate stocks.

00:43

Speaker A

at the top net income which is the total profit the company earns after all expenses and taxes minus the preferred dividends and you may be wondering what the preferred Dividends are a preferred stock is a type of Company ownership

00:58

Speaker A

Hey there, this is Mavik Finance, where investing concepts are explained in a simple way. But first, a quick disclaimer.

01:14

Speaker A

company has preferred stock these are the dividends paid to Preferred shareholders since they get paid first we subtract them from the net income because they're not available to Common shareholders all this stuff divided into the shares outstanding which is the

01:29

Speaker A

Let's start with the formula. At the top is net income, which is the total profit the company earns after all expenses and taxes, minus the preferred dividends. And you may be wondering what the preferred dividends are. A preferred stock is a type of company ownership that gives you priority over common stockholders when it comes to receiving dividends. Preferred stockholders usually get a fixed dividend rate, meaning they know how much they'll earn. However, they don't have voting rights in the company, unlike common stockholders. So if the company has preferred stock, these are the dividends paid to preferred shareholders. Since they get paid first, we subtract them from the net income, because they're not available to common shareholders. All of this is then divided by the shares outstanding, which is the total number of common shares available in the market for that specific stock.

01:42

Speaker A

and Yahoo finance then over here you will see the EPS keep in mind that this number may not always be up to dat especially when looking at smaller companies therefore it's important to verify this data with other sources to

01:57

Speaker A

Now that we know the formula, let's quickly show you how to find EPS on Yahoo Finance. You will type the name of the stock and Yahoo Finance on the internet, then over here you will see the EPS. Keep in mind that this number may not always be up to date, especially when looking at smaller companies. Therefore, it's important to verify this data with other sources to ensure it's correct.

02:14

Speaker A

$5 million preferred Dividends are $200,000 it has 1 million shares outstanding Company B its net income is $8 million preferred Dividends are $300,000 2 million shares outstanding the formula for EPS for company a is the net income minus the preferred dividends

02:37

Speaker A

That said, let's say we have two companies in the tech sector, Company A and Company B, and we want to calculate and compare their EPS to evaluate which one is more profitable for shareholders.

03:01

Speaker A

paying preferred dividends Company B has earned $3.85 for each of its 2 million shares after paying preferred dividends even though Company B has a higher net income and more shares outstanding company a ends up with a higher EPS this suggests

03:18

Speaker A

Company A: its net income is $5 million, preferred dividends are $200,000, and it has 1 million shares outstanding.

03:33

Speaker A

determine which company is truly more profitable or a better investment in the longterm to make a more informed decision investors should also consider other metrics like Revenue growth debt levels cash flow the stability of the company's profits over time and so

03:49

Speaker A

Company B: its net income is $8 million, preferred dividends are $300,000, and it has 2 million shares outstanding.

04:07

Speaker A

exceed its Revenue startups and growing companies may have negative EPS as they invest heavily before becoming profitable a negative EPS shows Financial struggles but it doesn't always mean a company is a bad investment investors should analyze why it's negative and look at other factors

04:25

Speaker A

The formula for EPS for Company A is the net income minus the preferred dividends, divided by the shares outstanding, so Company A has an EPS of $4.80. Now let's calculate the EPS for Company B using the same formula, and Company B has an EPS of $3.85.

04:40

Speaker A

number of shares outstanding if a company increases its net income its EPS will rise this could happen if sales go up costs go down or the company becomes more efficient if the company decreases its net income that would be bad news for investors

04:58

Speaker A

Company A has earned $4.80 for each of its one million shares after paying preferred dividends. Company B has earned $3.85 for each of its 2 million shares after paying preferred dividends. Even though Company B has a higher net income and more shares outstanding, Company A ends up with a higher EPS. This suggests that Company A is more efficient at generating profit per share of stock, which could make it more appealing to investors looking for value in terms of profitability.

05:14

Speaker A

you're celebrating your birthday and more and more people are showing up throughout the evening when it's time to serve the cake you'll need to cut it into more pieces so that everyone can have a slice but with more pieces each

05:27

Speaker A

However, it's important to note that EPS alone is not enough to determine which company is truly more profitable or a better investment in the long term. To make a more informed decision, investors should also consider other metrics like revenue growth, debt levels, cash flow, the stability of the company's profits over time, and so on. While Company A may have a higher EPS, Company B has a larger overall profit, which could indicate stronger business performance in absolute terms.

05:43

Speaker A

companies may choose to do this if they need quick access to Capital by issuing more shares they can raise money quickly for various reasons such as paying off debt or financing Acquisitions however companies can also buy back their own shares which reduces

05:59

Speaker A

EPS can also be negative when a company reports a net loss, meaning its expenses exceed its revenue. Startups and growing companies may have negative EPS as they invest heavily before becoming profitable. A negative EPS shows financial struggles, but it doesn't always mean a company is a bad investment. Investors should analyze why it's negative and look at other factors like revenue growth, cash flow, and debt levels to get a clearer picture of the company's overall health.

06:13

Speaker A

its shares the remaining Shares are entitled to a larger portion of the company's profits which boosts the EPS some companies buy back shares to increase EPs and keep investors happy as a higher EPS often makes the stock more

06:29

Speaker A

So what makes EPS go up or down over time? There are two main factors to consider: the profit and the number of shares outstanding. If a company increases its net income, its EPS will rise. This could happen if sales go up, costs go down, or the company becomes more efficient. If the company decreases its net income, that would be bad news for investors, because the EPS would also decrease.

06:43

Speaker A

watch it after this video you won't regret it the PE Ratio Compares a company's stock price to its EPS by dividing the price of the stock by the EPS one of the most popular valuation metrics I would say so the higher the

06:58

Speaker A

On the other hand, if a company issues more shares, the EPS could decrease because the same amount of earnings is now divided among a larger number of shares. Think of it like this: imagine you're celebrating your birthday, and more and more people are showing up throughout the evening. When it's time to serve the cake, you'll need to cut it into more pieces so that everyone can have a slice, but with more pieces, each slice becomes smaller. Similarly, when a company increases its shares, the earnings, which would be the cake, are divided into smaller portions, which means each share gets a smaller slice of the profit. This is also called share dilution, and companies may choose to do this if they need quick access to capital. By issuing more shares, they can raise money quickly for various reasons, such as paying off debt or financing acquisitions.

07:16

Speaker A

simple to calculate and understand provides a clear picture of a company's profitability per share and can be used to compare companies in the same industry cons it doesn't take into account comp debt or future growth potential companies with fewer shares

07:34

Speaker A

However, companies can also buy back their own shares, which reduces the number of shares outstanding and consequently increases earnings per share. It's like when almost no one at your birthday party wants a slice of cake, so the few who do get a bigger slice. Similarly, when a company buys back its shares, the remaining shares are entitled to a larger portion of the company's profits, which boosts the EPS. Some companies buy back shares to increase EPS and keep investors happy, as a higher EPS often makes the stock more attractive.

07:51

Speaker A

have any questions let me know in the comments below I'll be answering them as soon as possible like And subscribe for more value investing series and I will see you in the next video bye

Topics: earnings per share EPS value investing stock analysis net income preferred dividends shares outstanding financial metrics stock valuation beginner investing

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