Earning per share is calculated to find out overall profitability of the organization. It represents earnings of the company whether or not dividends are declared. Earning per share is determined by dividing net profit by the number of equity shares.
Purpose:
Purpose of this ratio is to calculate the amount of profit available on each equity shares to take care of equity dividend, transfer to reserve, etc.
Significance:
1) This ratio helps the investors or shareholders to take decision while purchasing or selling shares.
2) This ratio shows the possibilities of issue of bonus shares.
3) Higher ratio indicates overall profitability.
Formula:
Components:
1) Net profit after tax & interest - less preference dividend.
2) No. of equity shares.
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