Are you looking for how to increase EPS? EPS or Earnings per Share shows an organization’s total earnings or profit by showing exactly how much earning a business makes for each portion of its stock. The EPS figure is dictated by dividing the net income of a company during a period by the existing or outstanding stocks of the company.
In general, the higher number of EPS indicates the profitability of the organization. Also, increasing EPS causes the stock price. Now the question arises how to increase eps stock? Several factors affect EPS. We are going to discuss in detail what is Earnings per share and how to increase earnings per share.
Why is EPS important and How to increase EPS?
The straight answer is EPS is a significant factor in determining the potential profit of a company. Higher EPS value means high stock prices. Therefore, indicates the growth of the company. Organizations that have higher EPS can distribute their money to investors and shareholders. Further, with the help of Dividends.
Traders generally pay attention to the company’s Earnings per share before investing. Because calculating it gives an idea about the company’s profits on a per-share basis. It simplifies the process of comparing profits of various quarters. Additionally, several other factors determine a successful investment. It is advisable to do good research and calculation before investing. Further, to seek an answer to How to increase EPS?
Highlights of How to increase EPS i.e. Earnings per share
- This is generally calculated quarterly or annually.
- Higher the EPS higher the profit and value of the company
- The formula for calculating EPS is
Earning Per Share = Net Income/Average Number of Outstanding Shares
- To compute profit per share, the organization’s pay articulation and balance sheet utilize to discover overall gain, profits paid on favored stock, and outstanding stock after a given period.
Understanding Formula of EPS
Earning Per Share = Net Income- Dividends/Average Number of Outstanding Shares
Earnings per share calculate with the help of the above-mentioned formula. Moreover, with net income in the numerator and the average numbers of common shares in the denominator. As it calculates for a given period, the number of shares changes frequently due to issuance and other stock transactions. Further, an average of outstanding shares takes to calculate EPS.
How To increase eps?
The answer to How to increase eps is clear from the above-mentioned factors and formula. An in-Depth Analysis of how to increase the eps gives below for a better understanding:
1. By raising the net income of the company
Net income is calculated after adjusting all expenses and losses. Additionally, interest is paid from the overall revenue of the company in a given period. It is an ultimate indicator of how the company is growing. Net income can be increased by the factors mentioned below:
A simple and straight method is to increase the sales and performance of the company. Further, the revenue generated by giving satisfactory goods. Also, services to people can directly affect the net income of the company.
2. Decrease the overall costs
Spending money wisely is the method adopted for a long time in any field. The same is applicable to increasing earnings per share. Managing costs and expenses wisely and smartly can significantly increase the net income. The overall cost manages by adding smart methods to production, research, and development. Additionally, sales and marketing include advertising and several forms of taxes.
3. Decreasing the average number of outstanding shares
As indicated in the formula, the average number of outstanding shares is inversely proportional to the EPS. By decreasing it the organization can increase its EPS. To decrease the number of shares several companies adopt the method of trading their stock (Mostly Buying). Hence, decreasing the average number of shares outstanding for investors. This can significantly increase the EPS.
Similarly, when companies increase stock availability. It dilutes earnings per share.
It is evident that to increase earnings per share there should be an increase in the net income of the company or a decrease in the number of outstanding stocks. Apart from How to increase eps? The other important aspect related to this topic is how to increase roe in bsg. That is:
How to increase return on equity?
- First things first, in this approach also increasing the profits relative to equity raises the chance of increasing ROE.
- Managing good asset turnover
- Distributing spare or idle cash
- Managing or lowering various taxes.
- Apply more financial leverage
Accordingly, by following the formula companies can increase ROE. Further, by boosting their net income through the above-mentioned methods. And another method is repurchasing shares to reduce investors’ equity investment in the company.
Other aspects of earnings per share
While Earnings per share is a significant indicator of a company’s financial position and profits it is not always the case. One can only rely on the higher data of EPs to invest a huge sum of money.
As mentioned above Companies increase the EPS by buying back their shares. Again, the net income and profit remain the same. Reducing the average outstanding stocks by using this method can be manipulative.
Further, EPS excludes the company’s net outstanding Debt. A company with more debt requires huge capital to generate profits. On the other hand, a company without higher debt considers valuable.
Diluted EPS
A few organizations should report an extra weakened EPS number. The weakened EPS is appropriate for organizations that have complex capital constructions. Models incorporate organizations that have given investment opportunities and warrants.
Further, that qualifies their holders for the purchase of extra portions of normal stock from the organization. And convertible securities and favored stocks that are interchangeable for basic offers. These monetary instruments address the likelihood. Further, more portions of basic stock give and are conceivably “dilutive” to existing basic investors.
Summing up
Considering the above-mentioned facts and data, it can be concluded that EPS is a significant indicator of the health of a company. By increasing EPS companies can reinvest the profit or distribute profits to their investors. Hence, further boosting the financial position of the company. At the same time, if you are an investor, you should not only rely on the EPS data to invest hard-earned money. Go through other factors also.
Read more: What Is Money Control
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