The concept of basic earnings per share may be defined as the income that is made by a shareholder from a normal share. Basic earnings per share may also be explained as the income that is made from the amount of investment that is made at the start by the investors.
Uses of Basic Earnings Per Share
The concept of basic earnings per share is useful in many ways. For example the people who want to put their money in buying shares of companies can get valuable information about the amount of profit that is provided in each and every share of the company.
However, it should also be remembered that the basic earnings per share figure is not as reliable as the diluted earnings per share.
Equational Representation of Basic Earnings Per Share
The basic earnings per share is represented through the following numeric presentation:
Basic Earnings Per Share = Net Income – Preferred Dividends / Weighted Average Number of Shares