Earnings Per Share (EPS) is the single most important variable used in determining the earnings power of a company.
In calculating earnings per share, the dividends of preferred stocks need to subtracted from the total net income first.
Companies also reported diluted shares in their financial reports. Diluted shares include the shares of convertibles or warrants outstanding.
But investors need to be aware that Earnings per Share can be easily manipulated by adjusting depreciation and amortization rate or non-recurring items.
Earnings per share without Non-Recurring Items , which better reflects the company's underlying performance.
Compared with Earnings per share, a companys cash flow is better indicator of the companys earnings power.
If a companys earnings per share is less than cash flow per share over long term, investors need to be cautious and find out why.