Essay: Earnings per Share

Sample Essay

Earnings per share – EPS is one of the most important pieces of information for shareholders and is the per share portion of net income during a specific year. It is calculated by dividing the earnings after tax of a company by the total number of shares issued. If the capitalization structure of a company only consists of one class of common shares then the net income of that company will be divided by the total number of common shares issued and is disclosed at the bottom line of the income statement.

The term senior security refers to securities which have a higher priority at the time of dividend distribution and at the time of liquidation of a company. The term residual security on the other hand refers to securities which have residual claim in company profits and amount received from liquidation and which dilute the earning per share of a corporation. Senior securities include preferred stock and bonds while residual securities are comprised of common stock, warrants, rights and convertible bonds (Carmichael, Whittington, & Graham, 2007).

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