# Earnings per share (EPS) ratio

Written by True Tamplin, BSc, CEPF®
Updated on June 21, 2021

Earnings per share ratio is effectively a restatement of return on equity (ROE) ratio. While return on equity ratio is calculated as a percentage, taking total net profit and total equity, earnings per share ratio shows how much profit has been earned by each ordinary share (common share) in the year.

## Formula

Net profit attributable to ordinary (common) shares is arrived at by deducting corporation tax and preference dividend from the amount of net profit earned in any particular year.

## Example

The following information has been extracted from the balance sheet of John Trading Concern at the end of an year:
Profit before tax: \$480,000
Corporate tax: 50%
8%Preference shares capital: \$200,000 (20,000 preference shares of \$10 each)
Ordinary share capital: 800,000 (80,000 ordinary shares of \$10 each)
You are requested to calculate earnings per share ratio of John Trading Concern.

### Solution

Earnings per share (EPS) ratio = \$224,000*/80,000 shares
= 2.8
*Net profit attributable to ordinary shareholders = 480,000 – 240,000 – 16,000
= \$224,000
The earnings per share ratio of John trading company is 2.8 which means each ordinary share (common share) of the company earns \$2.8 during the period.