EPS tells about the earning per equity share.
EPS= Net Profit after tax and Pref dividend / Number of equity shares
40000/10000= Rs 4 per share
Net Profit before tax Rs 100000
Tax 50%
10% Preference dividend on Rs 100000
Equity Share Capital (of Rs 10 each) Rs 100000
Importance of Ratio-
1.The earning per share helps in determining the market price of the equity share of the company.
2. It helps in estimating the company's capacity to pay dividend to its equity shareholders.
3. It is basic requirement for calculating P/E ratio.
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