EPS

The first measurement that many investors use is earnings per share or EPS. This is calculated by dividing a company’s net profits by the number of shares in issue.

• If a company delivers post-tax profits of £1 million, for instance, and there are a million shares in issue, the earnings per share will be £1;
• If a company delivers profits of £1 million but it has two million shares in issue, its earnings per share will be 50p. A higher EPS is considered better than a lower EPS because it means investors are earning more profit per share they own.

Investors will look at current earnings and prospective earnings. These are the earnings that the market expects a company to deliver in the future.