The purpose of this page is to explain the indicator about growth among the indicators used in the analysis of companies and stocks.
Earnings per share (EPS) is the value obtained as the net income devided by the number of shares outstanding.
ref 1
That is, EPS is expressed by the following formula.
EPS = Net income Number of shares outstanding
EPS represents net income attributable to one share.
An increase in EPS leads to a rise in stock prices and an increase in dividends.
Therefore, most investors are paying attention to changes in the company's EPS.
EPS will rise whether net income increases or treasury stock is canceled.
The reason why EPS increases by canceling treasury stock is that the number of shares outstanding decreases.
In any case, management that emphasizes EPS is also evidence that shareholders are valued.
By the way, up to this point, the explanation is based on the case where all net income belongs to the shareholders of common stock and the number of shares in the market does not change.
Shareholders of common stock are called common stock owners.
In reality, not all net income belongs to common stock owners.
In addition, the number of shares distributed in the market is usually smaller than the number of shares outstanding.
Therefore, to be precise, in the EPS formula, the profit that does not belong to common stock owners must be deducted from the numerator, and the number of shares that do not circulate in the market must be deducted from the denominator.
The profit that does not belong to common stock owners is, for example, the profit of a subsidiary that belongs to non-controlling interests.
Stocks that do not circulate in the market are, for example, treasury stock repurchased by a company.
In such a case, in the EPS formula, "net income attributable to owners of the parent" is used as the numerator, and "average number of shares outstanding during period" is used as the denominator. ref 2 (Japanese only)
EPS = Net income attributable to owners of the parent Average number of shares outstanding during period
In this way, the actual calculation is not so simple because the company-specific circumstances affect EPS.
EPS is usually stated in securities reports and earnings report.
So individual investors do not have to calculate EPS.
However, some readers may want to know the exact calculation, so the information required for the calculation will be briefly described.
Since the owner of the stock is a shareholder of the parent company, it is natural to consider that the numerator of EPS is the net income attributable to the owner of the parent company.
In addition, if there is a preferred dividend that does not belong to ordinary shareholders, net income of the numerator in the EPS formula is deducted.
The use of the average number of shares outstanding during period as the denominator is stipulated in the Corporate Accounting Standards.
"The average number of shares outstanding during period" and "the number of shares outstanding at end of period" are shown in Figure 2-5-1 (j) on the second sheet of the earnings report.
| Total number of issued shares at end of period (including treasury shares) | |||
| March 31, 2022 | ………shares | March 31, 2021 | ………shares |
| Number of treasury shares at end of period | |||
| March 31, 2022 | …shares | March 31, 2021 | …shares |
| Average number of shares during period | |||
| March 31, 2022 | ……shares | March 31, 2021 | ……shares |
- Earnings report
- It is described "決算短信", and called "kessan tanshin", in Japan.
- Number of shares outstanding at end of period / Total number of issued shares at end of period
- It is described "期末発行済株式数", and called "kimatsu hakkou zumi kabushiki suu", in Japan.
- Number of shares of treasury stock at end of period
- It is described "期末自己株式数", and called "kimatsu jiko kabushiki suu", in Japan.
- Average number of shares (outstanding) during period
- It is described "期中平均株式数", and called "kityuu heikin kabushiki suu", in Japan.
Information required for calculating EPS can be described in the "Per share information" in the securities report or earnings report.
However, the ratio of "net income attributable to non-controlling interests" to net income is usually small, and even if net income is used as the numerator, a value close to the accurate EPS value can be obtained.
In addition, treasury stock that has not been canceled may always be released from the company, while cancellation will reduce the number of shares outstanding.
Therefore, the difference between the number of shares outstanding and the Average number of shares outstanding during period also does not need to be considered so much in understanding EPS.
EPS is used as the denominator of the formula for calculating PER.
Since the explanation of PER becomes complicated if details are included, on this website, the EPS formula is expressed by net income and the number of shares outstanding.
EPS is usually stated in securities report and earnings report, even if it is not calculated by individual investors.
Here, how to calculate the EPS is briefly described using the following income statement and the number of shares.
The unit of the amount in the income statement is 1 billion yen.
|
Net sales ・・・ Net income 165 Net income attributable to non-controlling interests 5 Net income attributable to owners of the parent 160 |
| Total number of issued shares at end of period (including treasury shares) | |
| FY XXXX | 1,600,000,000 shares |
| Number of treasury shares at end of period | |
| FY XXXX | 10,000,000 shares |
| Average number of shares during period | |
| FY XXXX | 1,590,000,000 shares |
In showing a calculation example, an accurate value will be used here.
In other words, in the EPS calculation formula shown above, "net income attributable to the owner of the parent company" and "average number of shares outstanding during period" will be used.
That is, the EPS in this example is 100.63 yen.
Book-value Per Share (BPS) is the value obtained as the book value of net assets devided by the total number of issued shares.
BPS = Net assets Total number of issued shares
BPS represents the net assets attributable to one share.
EPS looks at the value per share from the perspective of earnings, while BPS looks at it from the perspective of asset value.
Generally, if net income is positive, the net assets will increase, so BPS will increase accordingly.
Therefore, BPS is one of the indicators of corporate growth.
By the way, up to this point, the explanation is based on the case where all net income belongs to the shareholders of common stock and the number of shares in the market does not change.
In the actual calculation of book-value per share, as in the case of earnings per share, the numerator and denominator of the BPS formula are the net assets attributable to common stock owners and the number of shares in the market, respectively.
Therefore, to be precise, in the BPS formula, the profit that does not belong to common stock owners must be deducted from the numerator, and the number of shares that do not circulate in the market must be deducted from the denominator.
The profit that does not belong to common stock owners is, for example, subscription rights to shares and non-controlling interests.
Stocks that do not circulate in the market are treasury stock repurchased by a company.
In this case, the numerator of the BPS formula changes to the amount that non-controlling interests and subscription rights to shares have been deducted from net assets.
The number of shares in circulation at the end of the period is the number of shares outstanding minus the number of shares of treasury stock at end of period.
ref 2 (Japanese only)
BPS = Net assets − Subscription rights to shares − Non-controlling interests Number of shares outstanding − Number of shares of treasury stock at end of period
In this way, the actual calculation is not so simple because the company-specific circumstances affect BPS.
BPS is usually stated in securities reports and earnings report.
So individual investors do not have to calculate BPS.
However, some readers may want to know the exact calculation, so the information required for the calculation will be briefly described.
Since the owner of the stock is a shareholder of the parent company, it is natural to consider that the numerator of EPS is the net income attributable to the owner of the parent company.
It is natural to use the difference between the number of shares outstanding and the number of shares of treasury stock at end of period as the denominator because it is the number of shares in the market at the time of closing when the net assets was fixed.
Detailed rules for calculation has been stipulated in Corporate Accounting Standards.
The presence of preferred stock is also minus factor for net assets on the numerator.
Information required for calculating BPS can be described in the "Per share information" in the securities report or earnings report.
However, the ratio of "subscription rights to shares" or "net income attributable to non-controlling interests" to net income is usually small, and even if net income is used as the numerator, a value close to the accurate BPS value can be obtained.
In addition, treasury stock that has not been canceled may always be released from the company, while cancellation will reduce the number of shares outstanding.
Therefore, the difference between the number of shares outstanding and the number of shares in circulation in the market at the end of the period also does not need to be considered so much in understanding BPS.
BPS is used as the denominator of the formula for calculating PBR.
Since the explanation of PBR becomes complicated if details are included, on this website, the BPS formula is expressed by net income and the number of shares outstanding.
BPS is often used as an indicator to judge the bottom of stock prices because it corresponds to the asset value per share when a company is liquidated.
This idea is often appropriate for the bottom price of the average stock price.
However, there is a problem in considering BPS as a safety indicator for investing in individual stocks from the perspective of downside risk of stock prices.
This is because a stock price lower than BPS does not always mean that it is undervalued.
The BPS lower than stock price indicates that the market expects the company's future BPS to decline, and that expectation often comes true.
In a company that does not return many profit to shareholders and whose BPS is stagnant, even the management may have a bad outlook for the company's earnings growth.
In addition, a stock price higher than BPS does not always mean that it is overvalued.
Companies with high dividend payout ratios or companies that buy back their own shares and cancel treasury stock return much of their profits to investors.
In such companies, BPS does not increase because shareholders' equity does not increase.
However, such companies are often highly valued by the market because their net income is higher than their equity capital and leads to higher ROE.
Therefore, with regard to BPS, it is possible to judge whether a company is growing or not, by considering the reason for the change together with other indicators.
Book-value per share is usually stated in securities report and earnings report, even if it is not calculated by individual investors.
Here, how to calculate the BPS is briefly described using the following income statement and the number of shares.
The unit of the amount in the income statement is 1 billion yen.
|
Assets ・・・ |
Liabilities ・・・ |
|
Net assets Shareholders' Equity ・・・ Accumulated other comprehensive income ・・・ Subscription rights to shares 2 Non-controlling interests 30 Total net assets 500 |
|
| Total assets | Total liabilities and net assets |
| Total number of issued shares at end of period (including treasury shares) | |
| FY XXXX | 4,500,000,000 shares |
| Number of treasury shares at end of period | |
| FY XXXX | 100,000,000 shares |
| Average number of shares during period | |
| FY XXXX | 4,450,000,000 shares |
First, by excluding subscription rights to shares and non-controlling interests that do not belong to common shareholders from net assets, the amount of net assets related to common stock owners at the end of the period, of the numerator, is calculated.
That is, the amount of net assets related to common stock owners at the end of the period is 468 billion yen.
Next, the number of shares in circulation in the market is calculated by deducting the number of treasury stock from the number of shares outstanding, at the end of the period.
Therefore, BPS can be obtained from the following equation.
Therefore, the BPS is 106.4 yen in this example.