Companies can increase their EPS in two ways: increase net income and reduce shares outstanding.
If the outstanding shares remain relatively constant, a company could boost the EPS by increasing the net income. This could be a good sign, indicating that the company is making more money.
However, investors should be careful if the company's net income was increased due to a one-time event, as it is non-recurring.
A company could also generate higher EPS by reducing the number of shares outstanding. For example, companies increasingly used their cash to buy back their stock in recent years. In this way, the company reduces the number of shares outstanding and inflates the EPS given the same level of earnings.
In conclusion, EPS is a commonly used measure of a company's profitability.
It is also most closely watched by investors because EPS has a significant impact on a company's stock price.
This marks the end of the video. See you next time!
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
