Earnings Per Share (EPS) – Meaning, Types, Importance & Limitations

Reported EPS or GAAP EPS

It is achieved by using the Generally Accepted Accounting Principles and is disclosed in the SEC filings. However, a company’s earnings can be distorted by GAAP. If the income is generated through the one-time payment as operating income as per GAAP, it could shoot the EPS upwards. If a business considers regular expenses as an unusual expense, it will directly boost the earnings per share artificially.

Ongoing EPS or Pro Forma EPS

It is based on ordinary net income and excludes income generally passed as an unusual one-time income. Thus, it helps discover anticipated income from core business ventures but also does not help with the company’s real earnings.

Retained EPS

Retained EPS means the company holds the profit rather than distributing it to its shareholders as dividends. Several business owners use the retained earnings per share to pay off existing debts for major purposes like expansion or reserve them for future requirements. The retained EPS is calculated by adding the net earnings to the current retained earnings and then subtracting the total dividend paid from it. The remainder is then divided by the total number of outstanding shares. Retained EPS = (Net earnings + current retained earnings) – divided paid/total number of outstanding shares.

Cash EPS

Cash EPS helps to learn about a particular company's financial standing. It signifies the exact amount of cash earned by the company. It is challenging to manipulate Cash earnings per share. It can be calculated as Cash EPS = Operating Cash Flow/Diluted Shares Outstanding.

Book Value EPS

Book Value EPS is used to calculate the average amount of company equity in each share. It can also be used to estimate the worth of a company's stake if it has to be liquidated. It is a static representation of a company's performance as it focuses on the balance sheet.