A:

Earnings per share (EPS) is often considered to be one of the most important variables in determining a stock’s value, and it comprises the “E” part of the price-earnings (P/E) valuation ratio. EPS is calculated as:

EPS = net income / average outstanding common shares

The term “bottom line” refers to a company’s net earnings, net income or earnings per share. “Bottom line” describes the relative location of this figure on a company’s income statement: it typically is the last line at the bottom of the page; therefore, the bottom line. The figure, and being the last line on the page, reflects the fact that all expenses have already been subtracted from revenues (which appear towards the top of the page and are considered “top line” figures), and there is nothing left to subtract.

An income statement has four different components:

  • Revenue – gross receipts earned by the company by selling its goods/services
  • Expenses – costs to the company to earn the gross receipts
  • Gains – income from non-business related transactions
  • Losses – the opposite of gains, losing money when selling a company asset

The last line on the income statement is “Net income” or “the bottom line”.

RELATED FAQS

  1. What happens to the company stock if a subsidiary gets spun off?

    Learn what happens to a company's stock if a subsidiary gets spun off. Spinoffs are typically bullish catalysts for a company ...
  2. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Find out more about book value of equity per share, what BVPS measures and how to determine what level of BVPS indicates ...
  3. What is the effective interest method of amortization?

    Find out more about the effective interest rate method and how the effective interest method is used to amortize a discounted ...
  4. Is there a way to include intangible assets in book-to-market ratio calculations?

    Find out more about the book-to-market ratio and how to calculate a public company's book-to-market ratio including its intangible ...
RELATED TERMS
  1. Primary Earnings Per Share (EPS)

    One of two methods for categorizing shares outstanding. The other ...
  2. Earnings Announcement

    An official public statement of a company's profitability for ...
  3. Price-Earnings Ratio - P/E Ratio

    A valuation ratio of a company's current share price compared ...
  4. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative ...
  5. Nonadmitted Balance

    An item on an insurer’s balance sheet that represents reinsured ...
  6. Best's Capital Adequacy Relativity (BCAR)

    A rating of an insurance company’s balance sheet strength. Best’s ...

You May Also Like

Related Articles
  1. Personal Finance

    6 Things To Look For In Earnings Reports

  2. Term

    Primary Earnings Per Share (EPS)

  3. Markets

    The Most Important Metrics For Earnings ...

  4. Term

    Earnings Announcement

  5. Term

    Price-Earnings Ratio - P/E Ratio

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!