CIMA BA1 Syllabus B. Microeconomic And Organisational Context Of Business - EPS - Notes ^{6 / 13}

Earnings per share (EPS)

EPS shows the maximum dividend that could be paid to the owners of the business (ie the ordinary or equity shareholders) out of that year's profit after all payments have been made to other providers of finance (eg banks and preference shareholders).

EPS shows the return earned by the ordinary shareholders only, unlike ROCE which considers the return generated to all the investors including those who have just lent money to the company (eg banks).

Illustration

Cow Co has the following results.

Issued share capital (shares of $1) 100 million
* Includes preference dividend of $ 6 million

Required
Calculate earnings per share (EPS).

Solution

EPS =   (126,000 - 6,000) / 100,000

EPS = 120c per share