How Does Earnings Per Share Work?

Earnings Per Share, And Price/Earnings Ratio Twofrom 10 to 15, with a few undervalued stocks
Tools For Determining Stock Viabilityhitting 7 to 8 years. One of the hallmarks of the
There is far more to owning a stock than itsdot-com boom was the absurdly high price
share price, even if it's the share price that getsearnings ratios some shares of stock were selling
all the coverage in the financial press. A shareat P/E ratios of 100 or more, during the '90s.
price only shows the price to buy the stock, orOne thing to be aware of is that there are
how much you can theoretically sell it for, but itmultiple ways of calculating earnings per share;
does little to convey how much value is retainedthey all boil down to set asides of funds that are
from holding the stock for the long term.paid out before earnings are divided up between
The key to determining long term value in ashares. If you have any questions about how
stock is it's price/earnings ratio. Price/earnings is, inearnings per share are calculated for a stock you
essence, the price of a share, divided by thehold, ask your broker for more information.
earnings per share. Earnings per share is calculatedThe key to earnings per share is that by holding a
by dividing the total profits (less operatingshare of a company, you are, in theory, holding a
expenses, and preferred stock dividends) by thepiece of a corporation with a retained value, and
number of outstanding shares in circulation.you aren't speculating on the price going up
When looking at price/earnings ratio, a handy ruleindefinitely. One method of maximizing a good PE
of thumb is to try to calculate how many yearsratio stock with a stable price is to invest in a
of earnings would one share have to accumulatedividend purchasing plan in essence, you're telling
to match the price it was originally purchased at.the company to reinvest your dividends into new
In most companies, this results in a ratio rangingshares of the stock.