# Earnings Per Share (EPS) Ratio:

## Definition:

Earnings per share ratio (EPS Ratio) is a small variation of return on equity capital ratio and is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares.

## Formula of Earnings Per Share Ratio:

The formula of earnings per share is:

Earnings per share (EPS) Ratio = (Net profit after tax − Preference dividend) / No. of equity shares (common shares)

## Example:

Equity share capital (\$1): \$1,000,000; 9% Preference share capital: \$500,000; Taxation rate: 50% of net profit; Net profit before tax: \$400,000.

Calculate earnings per share ratio.

Calculation:

EPS = 1,55,000 / 10,000

= \$15.50 per share.

## Significance:

The earnings per share is a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased.