Analysts' reports include a company's
calculated
earnings per share
(EPS) as a measure of a company's health. A
company's earnings per share can help indicate its current
and future growth. Investors see an improvement in earnings per
share as a sign of increasing profitability.
EPS is figured by dividing a company's
total earnings by the number of existing shares. For example,
a company with $10 million in earnings and 500,000 shares would
have an EPS of $20.
While a high EPS is considered a sign of
financial strength, that's not always the case. A young company,
for example, may have a low EPS but still be a good investment.
On the other hand, a company may have a very high EPS for one
year because it raised its prices, but may not be able to sustain
that growth and turn out to be a weak investment.
Predicting the future
Analysts also estimate future earnings for
many companies. These estimates, which can be found on financial
Web sites and occasionally in newspapers, set a standard against
which the next round of reported earnings is measured. While there
are occasional earnings surprises, the estimates are often within
pennies of the actual results.
