In the business world, many business terms are not easy to understand. Like Earning Per Share. If defined, Earning Per Share is the net profit gained by the company per share.
What is earning per share?
What is earning per share? To be able to know the profit per share is very easy, you only need to know the amount of net profit that exists first, then only it is divided by the total number of shares that have been circulated. The result can be said as Earning Per Share.
The benefits of Earning Per Share
In capturing and convincing investors, the existence of Earning Per Share is very necessary. Because by knowing the net profit per share, the investors can be provided an assessment of how feasible and how big the opportunities could be.
Expecting to get large dividends becomes a natural thing. An investor would want a nominal investment poured out to produce results with large profits without having to work hard.
Each share may generate net profit
Earning Per Share can be regarded as income that will later be obtained by shareholders in the calculation per share. Every share owned by shareholders will generate profits with an amount that is not the same every year as it is in accordance with the company’s financial condition.
Earning Per Share is also used as a reference to the profitability of shares to be carried out by investors.
Weaknesses or flaws are Found in Earning Per Share
In the financial world, the use of Earning Per Share has a weakness that you should know about. Because in the process of reporting the financial condition of a company, there must be a name of weakness, especially in reporting earnings.
Complex Financial position of company
The company makes efforts as much as possible and uses a variety of ways so that the reporting presented can look very good. That way, the assessment of work activities carried out by the company will be judged well from the perspective of investors. This is the first weakness that can be found in the use of Earning Per Share.
This is certainly not desirable for investors, because honest reporting of profits is needed by investors. As an investor, many considerations will be taken before deciding to release the funds.
Earnings per share is dependent on Reporting:
The decisions of investors are largely determined by the reporting of earnings presented by the company.
If the value of the shares starts to decline significantly, it is possible for investors to aggressively sell existing shares in order to avoid even more losses. And conversely, if the value of shares rises, investors will flock to buy it to make the most profit.
The Main Causes of Increase in Earning Per Share
Here are some factors that are the main causes of the increase in Earning Per Share that you must understand, including:
- When the net profit is increased significantly, but the number of shares that have been circulating in the market are still in a fixed amount.
- Where the net profit condition is increasing, but the number of shares that have been circulating are decreased significantly
The Main Factors That Cause Earning Per Share Decline
Here are some factors that are the main causes of the decline in Earning Per Share that you must understand, including:
- When the net profit condition begins to decline, but the number of shares that have been circulating in the market are still in a fixed amount.
- Where the condition of net income begins to decline, but the number of shares that have been circulating in market get increased.
- Where the net income begins to increase with offset by the number of shares that have been circulating thus making the value of Earning Per Share to be decreased.
So, the important part is to get the real insights of profit per share or any loss per share. Because in this way investors can take the benefits.
