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DEFINITION of 'Rolling EPS'

Rolling EPS (earnings per share) gives an annual EPS estimate by combining EPS from the past two quarters with estimated EPS from the next two quarters.

BREAKING DOWN 'Rolling EPS'

The share price of a stock may look cheap, fairly valued or expensive, depending on whether you look at historical earnings or estimated future earnings. Estimates of future earnings are often too rosy, possibly making the valuation look cheap. On the other hand, historical earnings may not fairly represent a company's legitimate growth potential. Rolling EPS represents a compromise, giving investors a blend of historical and future earnings.

Calculating Rolling EPS

Rolling EPS may be calculated with the following formula:

Rolling EPS = (Net income from previous two quarters + estimates of net income from next two quarters) / average shares outstanding

Net income figures should subtract any dividends payable to holders of preferred shares.

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