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The denominator in the earnings per share formula is number of common shares outstanding.
What is the denominator used in the computation of earnings per share?
- The weighted average of the outstanding shares of common stock serves as the numerator of the earnings per share.
- The "per share" part necessitates further computation when the number of common shares changes in the middle of the year.
- The weighting of the per share part depends on how long each share number has been in circulation.
How are basic earnings per share determined?
- Basic EPS is calculated by dividing net income by the weighted average of the common shares outstanding for the relevant period.
- Preferred dividends should be removed from the net income because they are not available to common stockholders.
- Net income can also be broken down into "continuing operations" P&L and "total P&L".
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