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Earnings Per Share

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A company's earnings per share (EPS) is determined by dividing the company's profits by the number of shares that a company has outstanding. If a company has a profit of $10 million and has 20 million outstanding shares, then the company's earnings per share is fifty cents ($0.50). Since the number of shares that a company has outstanding can vary from day to day, earnings per share are often calculated from an average of the outstanding shares for a reporting period. Earnings per share can be used to help determine a company's performance; if earnings per share is growing at a relatively rapid rate then an investor might consider buying the stock, and if earnings per share is declining then it might be time to sell. Earnings per share is often used to help determine a company's value. For example, a company's price to earnings ratio is calculated by dividing the stock price by the company's earnings per share.



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