Earnings Used When Calculating Earnings Per Share Calculator

Determine the numerator for the Earnings Per Share (EPS) formula by calculating the earnings available to common shareholders.

Earnings Available to Common Shareholders:

$0

What are the Earnings Used When Calculating Earnings Per Share?

The **earnings used when calculating earnings per share (EPS)** refers to the portion of a company’s profit that is allocated to its common shareholders. This figure is formally known as “Earnings Available to Common Shareholders.” It is a critical component in fundamental analysis because it represents the numerator in the basic EPS formula. Before common shareholders have a claim to any of the company’s profit, dividends owed to preferred shareholders must be paid out first.

Therefore, to find the earnings attributable to common stock, you must subtract the preferred dividends from the company’s overall net income. This resulting value is what’s truly available to be distributed as dividends to common shareholders or to be reinvested back into the company on their behalf. Investors and analysts watch this number closely as it directly impacts a company’s profitability from a common shareholder’s perspective.

The Formula for Earnings Used in EPS Calculation

The formula is straightforward and serves as the foundation for the basic Earnings Per Share calculation. It isolates the profit that belongs solely to common equity holders.

Formula:

Earnings Available to Common Shareholders = Net Income – Preferred Dividends

This calculated value then becomes the numerator in the basic EPS formula, which you can learn more about by reading our guide to the Basic EPS Formula.

Description of variables used in the calculation.

Variable	Meaning	Unit	Typical Range
Net Income	The company’s total profit after all operating expenses, interest, and taxes are deducted.	Currency (e.g., USD)	Can be negative (net loss) to billions.
Preferred Dividends	The fixed payments promised to holders of preferred stock.	Currency (e.g., USD)	Zero to millions, depending on the company’s capital structure.
Earnings Available to Common Shareholders	The profit remaining for common stockholders after preferred dividends are paid. This is the **earnings used when calculating earnings per share**.	Currency (e.g., USD)	Can be negative to billions.

Practical Examples

Example 1: A Profitable Tech Company

Imagine a software company reports a strong quarter.

• Input (Net Income): $5,000,000
• Input (Preferred Dividends): $500,000

Using the formula, the calculation would be: $5,000,000 – $500,000 = $4,500,000. The earnings used to calculate EPS for this company is **$4,500,000**.

Example 2: A Utility Company with High Preferred Stock Issuance

Utility companies often use preferred stock to raise capital. Let’s look at a scenario where a company had a less profitable year.

• Input (Net Income): $800,000
• Input (Preferred Dividends): $1,000,000

The calculation is: $800,000 – $1,000,000 = -$200,000. In this case, the earnings available to common shareholders is a negative **$200,000**. This means that after paying its obligations to preferred shareholders, the company had no profit left for its common shareholders, resulting in a net loss for them.

How to Use This Calculator

Our calculator simplifies the process of finding the earnings available to common shareholders. Follow these steps for an accurate result:

1. Enter Net Income: In the first field, input the company’s net income for the period. You can find this on the company’s income statement. If the company had a loss, enter a negative number.
2. Enter Preferred Dividends: In the second field, input the total amount of dividends paid or declared for preferred stock. If the company has no preferred stock or didn’t declare dividends, enter 0.
3. Review the Result: The calculator will instantly display the “Earnings Available to Common Shareholders.” This is the number you would use as the numerator for the basic EPS calculation.
4. Analyze the Chart: The bar chart provides a visual representation of how the net income is divided, helping you quickly see the impact of preferred dividends.

Key Factors That Affect Earnings for Common Shareholders

Several factors can influence the final earnings figure available to common stockholders. Understanding the difference between Preferred vs Common Stock is a great place to start.

1. Revenue Growth or Decline:

The top line is the starting point. Strong sales directly increase the potential for higher net income.

2. Operating Expenses:

Costs like salaries, marketing, and R&D reduce profit. Efficient cost management can significantly boost net income.

3. Interest Expenses:

Debt payments are made before profit is calculated. High debt levels can eat into earnings.

4. Tax Rates:

The corporate tax rate directly reduces the final net income figure.

5. Capital Structure:

The amount of preferred stock a company has issued determines the size of preferred dividend payments that must be subtracted from net income.

6. Non-Recurring Events:

One-time gains or losses, such as from selling an asset or litigation costs, can distort the net income figure for a single period.

Frequently Asked Questions (FAQ)

1. What is the difference between net income and earnings available to common shareholders?

Net income is the total profit of a company. Earnings available to common shareholders is the net income that remains after subtracting dividends owed to preferred shareholders.

2. Why are preferred dividends subtracted from net income?

Preferred stockholders have a higher claim on a company’s assets and earnings than common stockholders. Their dividends are a fixed obligation that must be paid before any profit can be distributed to common shareholders.

3. What if a company has no preferred stock?

If a company has no preferred stock, then no preferred dividends are paid. In this case, the earnings available to common shareholders are equal to the net income.

4. Can the earnings available to common shareholders be negative?

Yes. If the amount of preferred dividends exceeds the net income, the earnings available to common shareholders will be negative, indicating a loss for that group of investors.

5. Where can I find the data for this calculation?

You can find a company’s Net Income and Preferred Dividend payments on its quarterly or annual income statement, typically filed with regulatory bodies like the SEC.

6. Is this the same as “Net Income to Common” on some financial sites?

Yes, “Net Income to Common,” “Net Income Available for Common Stockholders,” and “Earnings Available to Common Shareholders” are generally used interchangeably to mean the same thing.

7. Does this calculation account for share buybacks?

No. This calculation determines the total earnings pool. Share buybacks affect the denominator of the EPS formula (the weighted average shares outstanding), not the numerator. Read about it in our P/E Ratio Explained guide.

8. How does this relate to Diluted EPS?

This figure is the starting point for both basic and diluted EPS. For diluted EPS, the earnings figure might be adjusted further if there are convertible preferred stocks or bonds. For more detail, see our article on Diluted EPS Calculation.

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