What are Earnings Per Share?

Earnings per share is earnings per share ( EPS ), also known as after-tax earnings per share and earnings per share, which refers to the ratio of after-tax profits to total equity. It is the net profit that the common stockholder can enjoy or the net loss that the company must bear for each share. Earnings per share is usually used to reflect the company's operating results, to measure the profitability of common stock and investment risk. It is used by investors and other information users to evaluate corporate profitability, predict their growth potential, and then make relevant economic decisions. One of the important financial indicators. In the income statement, Article 9 lists the items of "basic earnings per share" and "diluted earnings per share".

Earnings per share

Earnings per share is earnings per share (

Human understanding of stock market volatility is a very challenging world-class problem. So far, no theory or method can be convincing and stand the test of time-in 2013, the Royal Swedish Academy of Sciences awarded Robert Schiller and others the Nobel Prize in Economics for the year: there is almost no way It can accurately predict the trend of the stock market and bond market in the next few days or weeks, but it may be possible to predict the price for more than three years through research.

There are two main methods of stock investment analysis:

This ratio reflects the after-tax profit generated by each share. The higher the ratio, the more profit is created. If the company has only ordinary shares, the net income is the net profit after tax, and the number of shares refers to the shares outstanding.

Pay attention to the following issues when using EPS to analyze profitability:

(1) Earnings per share does not reflect the risks contained in the stock. For example, suppose that a company originally engaged in the production and sales of daily necessities and recently turned to real estate investment. The company's operating risk has increased a lot, but the earnings per share may not change or increase, and it does not reflect the adverse changes in increased risk.

(2) Stocks are a concept of "shares". Each stock of different stocks is economically unequal.

I. Background for the formulation of Accounting Standards for Business Enterprises-Earnings per Share

The calculation of earnings per share has gradually developed in the United States since 1950. This indicator is mainly used to help investors evaluate the profitability of enterprises. The earnings per share indicator can reflect the operating results of the enterprise, the profits enjoyed by shareholders of ordinary shares, and the performance of the enterprise in different accounting periods. Since the indicator of earnings per share is a ratio calculated by using the number of common shares issued by an enterprise as the denominator, the indicator can also be used to compare the performance of different enterprises. At present, major capital markets in the world such as the United States, the United Kingdom, Australia, Germany, France, Canada, and Japan all have earnings per share guidelines that require listed companies and companies in the process of applying for listing to calculate and disclose earnings per share information. The International Accounting Standards Board has provided for the calculation and presentation of earnings per share in its No. 33 standard.

Previously, China had no accounting standards for earnings per share. At present, listed companies are mainly based on the "Content Disclosure Standards and Formats of Information for Companies Offering Securities to the Public No. 2-Contents and Formats of Annual Reports" issued by the China Securities Regulatory Commission and "Rules for Information Disclosure and Compilation Rules for Public Offering Securities Companies No. 9 Calculation and Disclosure of Return on Net Assets and Earnings Per Share "provides earnings per share information.

2. Features of "Enterprise Accounting Standards-Earnings per Share"

There are four chapters and fifteen articles in Accounting Standards for Business Enterprises-Earnings per Share. The general part of Chapter I mainly clarifies the purpose, basis, and scope of application of the standard, Chapter II specifies the calculation method of basic earnings per share, Chapter III specifies the calculation method of diluted earnings per share, and Chapter IV specifies Presentation of earnings per share.

The Accounting Standards for Business Enterprises-Earnings Per Share has both the same and different points from China's current requirements for the calculation and presentation of earnings per share. The similarities are shown in the following: both are for the purpose of standardizing the calculation and presentation of earnings per share, and their scope of application is the same. They are applicable to companies that have publicly traded common shares or potential common shares, and are in the process of publicly issuing common shares. Or potential common stock companies. The difference between the two is mainly reflected in:

(1) The subjects of formulation and promulgation are different. At present, the regulations for calculating and disclosing earnings per share that Chinese listed companies follow are formulated and promulgated by the China Securities Regulatory Commission; the earnings per share guidelines are formulated and promulgated by the Ministry of Finance. Because of this, the difference between the two needs to be resolved by coordination between the two departments.

(2) The contents of earnings per share are different. According to the current regulations of the China Securities Regulatory Commission, companies preparing to go public or already listed need to calculate a weighted average basic earnings per share and fully diluted earnings per share, without considering the impact of potential ordinary shares, and do not need to calculate diluted earnings per share. When calculating earnings per share, the company should calculate earnings per share based on the main business profit, operating profit, net profit and net profit after deducting non-recurring gains and losses. The earnings per share standard requires the company to calculate and report basic earnings per share and diluted earnings per share, without the need to calculate and present fully diluted earnings per share. When calculating earnings per share, you only need to base on net profit.

(3) Different forms of disclosure of earnings per share information. According to the "Content Disclosure and Format Guidelines for Companies Offering Securities to the Public No. 2-Contents and Formats of Annual Reports", listed companies shall provide in the annual report in the form of a list the major accounting statements of the company for the first three years as of the end of the reporting period. Data and financial indicators, including fully diluted earnings per share and weighted average earnings per share, and require separate presentation of the return on net assets calculated using the fully diluted method and the weighted average method Share earnings, instead of listing earnings per share in the positive statement of income statement, and the disclosure of earnings per share information is not reflected in the notes to the accounting statements; the earnings per share standard requires companies to list earnings per share in the income statement , And require disclosure of basic earnings per share and diluted earnings per share and their calculations in the notes to the accounting statements.

Analysis of key and difficult points of the EPS guidelines

(1) Calculation of basic earnings per share

The formula for calculating basic earnings per share is as follows:

Basic earnings per share = Current net profit attributable to ordinary shareholders ÷ weighted average number of ordinary shares outstanding during the period

It can be seen from the formula that the key to calculating basic earnings per share is to determine the current net profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding during the current period. In calculating the current net profit attributable to ordinary shareholders, consideration should be given to whether the company has preferred shares. If there are no preferred shares, the company's current net profit is the current net profit attributable to ordinary shareholders. If there are preferred shares, if the preferred shares are non-cumulative preferred shares, the dividends paid or declared in the current period shall be deducted from the company's current net profit; if the preferred shares are cumulative preferred shares, the company's net profit Dividends payable up to the current period. In China, the company does not have preferred stocks, so the company's current net profit is the current net profit attributable to ordinary shareholders.

The number of newly issued common shares shall be receivable from the receivables according to the specific terms of the issuance contract.

I. Development background

Reflect the performance of the company between different accounting periods.

Basic earnings per share is relative to diluted earnings per share, which is the earnings per share without deductions and dilution. (Diluted earnings per share is based on basic earnings per share. It is assumed that all diluted potential ordinary shares issued by the company have been issued. Converted into ordinary shares, thereby adjusting the current net profit attributable to ordinary shareholders and the earnings per share calculated from the weighted average number of ordinary shares outstanding.