Accounting

Basic EPS

By May 24, 2019September 21st, 2021No Comments

What is Basic EPS?

Basic Earnings per Share (EPS) is the amount of profit entitled to each stock based on stocks outstanding. It’s calculated by dividing Net Income by Basic Weighted Average Shares Outstanding (WASO). Whereas Net Income represents the entire pie of profits that shareholders are entitled to, Basic EPS represents the portion of the pie entitled to each share.

Basic EPS is usually reported at the bottom of the Income Statement, after Net Income and Basic WASO. Because Basic EPS is a per-share metric, it’s usually calculated only for publicly-traded companies. That’s because stock market investors focus intently on per share metrics. They care about the stock price per share and the earnings per share Investors can analyze how much profit they get for the price they’re paying. On the other hand, this metric is rarely calculated for privately-held companies. Private companies don’t have stock prices that fluctuate daily and their owners focus instead on the company as a whole. Therefore, private companies often don’t report Basic EPS.

In practice, Financial Analysts rarely use the Basic Earnings per Share number. They prefer to use Diluted Earnings per Share instead.

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