What are the best uses for trailing EPS, current EPS and forward EPS?

By Jean Folger AAA
A:

Earnings per share (EPS) serves as an indicator of a company’s profitability. It 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 P/E (price-earnings) valuation ratio. EPS is calculated as:

EPS = net income / average outstanding common shares

There are three basic types of EPS numbers based on where the data comes from:

  • Trailing EPS – based on the previous year’s number
  • Current EPS – based on this year’s numbers, which are still projections
  • Forward EPS – based on future numbers, which are projections

A trailing EPS uses the previous four quarters of earnings in its calculation, and has the benefit of using actual numbers instead of projections. Most price to earnings ratios (P/Es) are calculated using the trailing EPS because it represents what actually happened, and not what might happen. Although the figure is accurate, the trailing EPS is “old news” and many investors will also look at current and forward EPS figures.

The current EPS typically includes the four quarters of the current fiscal year, some of which may have already elapsed, and some of which are yet to come. As a result, some of the data will be based on actual figures and some will be based on projections.

A forward EPS is based purely on projections for some period of time in the future, typically the coming four quarters. Forward EPS estimates can be made by analysts or by the company itself. While this number is based on estimates and not facts, investors are often interested in forward EPS since they want to know about the future earning potential of a company.

Investors often compare the different EPS calculations. Investors, for example, may compare the forward EPS (projections) with the company’s actual earnings per share for the current quarter. If the actual EPS falls short of forward EPS projections, the stock price may fall. If the actual EPS beats estimates, however, the stock may experience a short rally.

RELATED FAQS

  1. What role does discounted cash flow (DCF) play in stock valuation?

    Understand the meaning and significance of discounted cash flow, and learn how market analysts commonly use this stock evaluation ...
  2. What is the first day of the third quarter?

    Learn when the first day of the third quarter begins. Explore how reported financial results may have a profound impact on ...
  3. What is the difference between revenue and sales?

    Learn to distinguish between a company's revenue and its sales, and see why the distinction is important when analyzing a ...
  4. What is the difference between revenue and income?

    Understand the difference between income and revenue, how these terms are often confused in day-to-day usage and how to identify ...
RELATED TERMS
  1. Basic Earnings Per Share

    A rough measurement of the amount of a company's profit that ...
  2. Primary Earnings Per Share (EPS)

    One of two methods for categorizing shares outstanding. The other ...
  3. Price-Earnings Ratio - P/E Ratio

    A valuation ratio of a company's current share price compared ...
  4. Best's Capital Adequacy Relativity (BCAR)

    A rating of an insurance company’s balance sheet strength. Best’s ...
  5. Deferred Tax Asset

    A deferred tax asset is an asset on a company's balance sheet ...
  6. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...

You May Also Like

Related Articles
  1. Personal Finance

    6 Things To Look For In Earnings Reports

  2. Markets

    The Most Important Metrics For Earnings ...

  3. Fundamental Analysis

    Earnings Quality, the Facebook Example

  4. Trading Strategies

    Not All Online Trading Brokers Are Created ...

  5. Trading Strategies

    Novice Trading Strategies

Trading Center