How to Determine Earnings per Common Share for Investors - dummies

# How to Determine Earnings per Common Share for Investors

To determine how much money an investor really makes, you have to determine the earnings per common share (EPS). When you own a company by yourself, the amount of money the company makes is the amount of money you earn.

In contrast, when you own a share of stock, you still own a part of the company, but you have to split the amount of money the company makes with everyone else who owns stock. So how much money does an investor really make when he owns a share of stock? You find out by determining the earnings per common share (EPS):

Follow these steps to use this equation:

1. Find the net income and preferred dividends on the income statement near the bottom; preferred dividends should be below net income.

2. Use the balance sheets of the current year and the previous year to calculate the average outstanding common shares:

Add the number of common shares outstanding from the current period and the number from the previous period and divide the sum by 2.

3. Subtract the dividends paid out to preferred shareholders (the holders of preferred shares) from the net income.