Basic Earnings Per Share (EPS) = (net income - preferred dividends)/average number of common shares outstanding (weighted).
Now that the formulaic stuff is out of the way, let's get to what it actually means. Basic EPS is an estimate or measurement (albeit rough) of how much of an institution's profit can be assigned to one share of that company's stock.
So, for example, let's say a new pogo stick craze hits the schoolyards of every town in America. Reluctant parents across the nation cave to the incessant demands of their children. Paulie's Pogo Emporium, LLC hits record revenues, resulting in a net income of $20 million, after all expenses are paid and Uncle Sam gets paid his protection money.
Paulie's issues its preferred stockholders some preferred dividends to the tune of $5 million, with a remaining earnings available to the common shareholders in the amount of $15 million. Beginning with 20 million common shares at the start of the year, Paulie's issued 4 million shares in the second half of the year. Consequently, the weighted average number of common shares would be 22 million (20 x 0.5) + (24 x 0.5) = 22.
If you divide the remaining $15 million available to common shareholders by the weighted average of 22 million, your basic EPS comes out to $0.68.
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Finance: What are normalized earnings?5 Views
Finance allah shmoop what are normalized earnings All right this
is norm or it's supposed to be We just couldn't
get the licensing rights from him So this is our
public domain version of norm from cheers Sorry And this's
normal that's a bell curve Yeah you're in the ebola
abatement business Each year the government spends a few bucks
on you Just keep you alive Is a business in
case Well you know a few hundred million peoples faces
start melting off like you know that scene in indiana
jones you know the good ones so your earnings are
usually here and here and here and here a buck
a buck twelve twenty three twenty four years I'm like
that But then one year after miss malaria's high school
biology class takes a field trip to study monkeys bats
and beetle crap in caves in central ghana Well your
business picks up So this year when the gove is
having to spend a fortune on ebola abatement you were
nine dollars and forty two cents a share And since
world awareness has suddenly shot up the most popular yahoo
search term index that thing well next year you'll still
learn five seventeen to share even though most the ebola
is pretty much gone now But then things quiet down
in life goes back to normal where your earnings are
you know normal and you could plot some kind of
line through them And if someone asked you what normalized
earnings are in your little ebola abatement company well you
could say that your normalized earnings are in about a
buck twenty Well fortunately making out with the nigerian fruit
bat is not normal so you probably don't have to 00:01:40.539 --> [endTime] worry about contracting ebola Ooh
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