The formula
Worked example
Here is the calculation with the starting values:
- Net income: 48,000,000
- Preferred dividends: 3,000,000
- Shares outstanding: 15,000,000
That gives:
- Earnings per share: 3
- Earnings available to ordinary shares: 45,000,000
- Preferred takes: 6.25 %
These figures are only the calculator's own starting values, included so the working is visible rather than hidden inside the tool above. Replace them with your own numbers and the same arithmetic applies — nothing about the method changes, only the inputs feeding it.
Reading the result
EPS is only comparable to the same company's history. Across companies it is meaningless on its own — a £10 EPS is not better than a £1 EPS, it just means fewer shares exist. Growth in EPS is what carries information.
Where this goes wrong. Buybacks flatter EPS without the business improving. If profit is flat and the share count falls 8%, EPS rises 8% — real for a shareholder, but not the same as growth in earnings.
A useful check on any unfamiliar result is to compare it against a rough mental estimate first — round the inputs to convenient numbers and see whether the calculator's answer lands in roughly the same territory. A wildly different figure usually means one of the fields was entered in the wrong unit, most often a percentage typed as a whole number where a decimal was expected, or the reverse.
Basic uses the shares in issue. Diluted assumes every option, convertible bond and share award that could become an ordinary share has done so. Diluted is the more conservative number and the one worth using.
Yes, when a company makes a loss. Negative EPS makes the price/earnings ratio meaningless, which is why loss-making companies are valued on revenue multiples or cash flow instead.
The answer it gives you is earnings per share. With 48,000,000 net income, 3,000,000 preferred dividends and 15,000,000 shares outstanding, that comes to 3. Change any field and the figure moves with it.
Whenever one of the underlying figures changes — a new interest rate, a different balance, an updated term — since the result only reflects what is currently in the fields. There is no need to keep a separate record of past results; the web address for a filled-in version already carries the figures used to produce it.
Not unless a tax rate or a fee is explicitly one of the inputs above. Where it is not, the figure shown is a gross calculation, and any tax due depends on your personal circumstances and current tax rules, which are worth checking separately.
The arithmetic itself is exact — the calculator applies the formula shown above precisely, with no rounding until the final figure is displayed. The uncertainty, where it exists, is entirely in the inputs: an estimated rate or an approximate balance carries that same approximation through to the result.