What is EPS?
EPS stands for Earnings Per Share. Imagine a company is like a pizza, and each slice is a share of stock. EPS tells you how much money each slice of pizza (share) gets from the company's profits.
What is NET INCOME?
Net Income is the total amount of money a company makes after paying all its bills. Think of it as how much money your lemonade stand has left after you've paid for the lemons, sugar, and cups. It’s the company’s total profit.
Key Differences
- What they show: Net Income shows the total profit, while EPS shows the profit for each share.
- How to find them: Net Income is found by subtracting all expenses from all revenue. EPS is found by dividing Net Income by the number of shares.
- Why we use them: We use Net Income to see if a company is making money overall. We use EPS to compare how profitable different companies are for each share of stock.
- Example: Imagine two lemonade stands. Stand A has a Net Income of $100. Stand B has a Net Income of $50. Stand A made more money overall! Now, imagine Stand A has 10 owners (shares) and Stand B has only 2 owners (shares). Stand A's EPS is $100/10 = $10 per share. Stand B's EPS is $50/2 = $25 per share. Even though Stand A made more money overall, each owner of Stand B made more money per share.
When to Use Each One
Use Net Income when you want to know the total profit a company has made. For example, if you want to see if your favorite toy company is doing well, you'd look at its Net Income. Use EPS when you want to compare the profitability of different companies' stocks. If you are trying to decide which company to invest in, EPS can help.
The Bottom Line
Net Income and EPS are both important for understanding how a company is doing. Net Income shows the total profit, while EPS shows the profit per share. Use Net Income to see the overall health of a company, and use EPS to compare different stocks. They are like two pieces of the same puzzle!