Calculating PER/Share figures

[tradez]

Hi all,
I have been wondering about the calculation of EPS, Equity per share and other per/share figures. For example I know with earnings per share that the total of a company's annual earnings is divided by its "outstanding shares" to get the per share figure. The problem is I'm not exactly sure what
"outstanding shares" ecompasses. Is it just the total of ordinary shares outstanding or does it include preference shares, convertibles etc.? Obviously the decision on which shares to include in the calcultation would have quite a dramatic effect on the per share figure depending on what is included. Could someone point me in the right direction on this one?

 

[bullmarket]

Hi tradez

Hi all,
I have been wondering about the calculation of EPS, Equity per share and other per/share figures. For example I know with earnings per share that the total of a company's annual earnings is divided by its "outstanding shares" to get the per share figure. The problem is I'm not exactly sure what
"outstanding shares" ecompasses. Is it just the total of ordinary shares outstanding or does it include preference shares, convertibles etc.? Obviously the decision on which shares to include in the calcultation would have quite a dramatic effect on the per share figure depending on what is included. Could someone point me in the right direction on this one?

Calculating EPS or any per share numbers can get messy and to be done properly has to be done according to accounting standards - and I'm no expert in company accounting

But basically the number of shares you use is some sort of weighted average number of shares that were on issue for the period you are looking at. This allows for rights issues, placements or whatever that might have occured during the period.

I did a quick google searching for 'calculate diluted eps' and it came back with quite a few PDF files and web pages describing all sorts of standards. Maybe have a look at this web page that gives an idea of the standards involved in calculating EPS.

Personally, if I need the number of weighted average shares on issue I just go to the latest annual or half year report and hope they quote the number.

Anyway, hope this helps and if you haven't already done so maybe do a google to get the info you need, but proper (according to accounting standards) per share numbers can be messy to calculate imo.

cheers

bullmarket

 

[michael_selway]

Hi all,
I have been wondering about the calculation of EPS, Equity per share and other per/share figures. For example I know with earnings per share that the total of a company's annual earnings is divided by its "outstanding shares" to get the per share figure. The problem is I'm not exactly sure what
"outstanding shares" ecompasses. Is it just the total of ordinary shares outstanding or does it include preference shares, convertibles etc.? Obviously the decision on which shares to include in the calcultation would have quite a dramatic effect on the per share figure depending on what is included. Could someone point me in the right direction on this one?

read below

https://www.aussiestockforums.com/forums/showthread.php?t=2969

 

[michael_selway]

read below

https://www.aussiestockforums.com/forums/showthread.php?t=2969

Actually the last post in the above link...

PE = Price Earnings Ratio = Current Price/EPS
EPS = Earnings Per Share = NPAT/total no. of shares in the company
NPAT = Net Profit After Tax

Im sure u know what NPAT is roughly. So why divided by total no. of shares to get EPS? Well think of each share in a company being an "owner". So each year its NPAT has to be split between the no of owners (shares). Thats how they calculate DPS (dividends per share) which is a certain % of EPS (payout ratio) usually.

Ok So for PE, why current price divided by EPS? Well actually its better to look at 1/PE which is the Return On Invetsment (ROI). If u put $100 in the bank, it will earn about $5 interest pa. So this is a ROI of 5% pa. or a PE of 1/0.05 = 20. But money in bank is risk free and pretty much guaranteed

Money in the stock market is not guaranteed any return and has risk. When the economy is bad, thats when the risk is the highest. Others like SARS, Terror Attacks also can affect the share price as well as a lift in interest rates/commodity price etc. Also the company itself, risky/cyclical industries, eg housing boom, high oil prices can affect NPAT.

So generally All Ords average PE shouldnt be 20+, otherwise its not incorporating the "risk premium" of holding money in shares as to money in the bank. Atm All Ords is about 16 average which is ok but definitly not cheap. PE of 15 is a bench mark fair value I think (ROI of 6.66%). One should also look at average PE of the industry/sector

Ok but can one still have a high PE? Yes.

A high PE can be justified by high growth in Forecast EPS......