Which earnings are used for the EPS formula? Is it net income or retained earnings (in the case of a company that pays dividends)?

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Earnings per share (EPS) utilizes net income. Technically, the formula is:

EPS = (Net income - preferred dividends) / outstanding shares

I’m adding some new material on EPS to this chapter, which will be available by tomorrow evening. Check it out if you’re interested.

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That’s the formula for earnings per share or price to earnings ratio?

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You mean that the actual formula for PE ratio doesn’t use EPS?

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I just realized I mistakenly typed ‘PE ratio’ in the formula above instead of EPS. It has been updated. To be clear, here are the two formulas, which are discussed in this chapter I just updated today:

EPS = (Net income - preferred dividends) / outstanding shares

PE ratio = Market price / EPS

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Thanks for clarifying

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