Last Updated on September 23, 2023 by BFSLTeam BFSLTeam
Table of Content
Introducing Trailing EPS
Trailing earnings per share (EPS) is a measure of how much a company earned in the past on a per-share basis. It is calculated by dividing the company’s net income for a certain period (usually a fiscal year) by the number of shares outstanding during that period. Trailing EPS is often used to compare a company’s profitability with other companies or with its own performance in previous periods.
The word “trailing” means that the EPS is based on past data, not on future projections. Trailing EPS can be calculated for any period of time, but it is usually reported for the last 12 months or four quarters. This is called the trailing 12-month (TTM) or trailing four-quarter (TFQ) EPS. The advantage of using trailing EPS is that it uses actual numbers, not estimates or assumptions. Most price to earnings (P/E) ratios are based on trailing EPS, because it reflects what really happened, not what might happen in the future. However, trailing EPS can also be outdated, because it does not account for changes in the market or in the company’s operations. Therefore, many investors also look at current and expected future EPS, which are based on analyst forecasts and are called earnings estimates.
Trailing EPS also allows analysts to examine trends and patterns in a company’s earnings. Analysts can compare different periods of trailing EPS to see how a company’s profitability has changed over time. They can also focus on specific quarters that are important for a company’s business. For example, the fourth quarter is usually very significant for retailers, because it includes the Christmas and holiday season. Analysts can compare the fourth-quarter trailing EPS for different years to see how well a company performed during this peak period. They can also compare the trailing 12-month EPS for these years to see the overall impact of the fourth quarter on the company’s annual earnings.
Measuring Trailing PE Ratio
Trailing earnings per share (EPS) is a measure of how much a company earned in the past on a per-share basis. It is calculated by dividing the company’s net income for a certain period (usually a fiscal year) by the number of shares outstanding during that period. Trailing EPS is often used to compare a company’s profitability with other companies or with its own performance in previous periods.
Growth investors are interested in companies that are growing their earnings consistently over time. They use trailing EPS or yearly EPS to check if the company is achieving this goal.
Growth investors look for quarterly earnings that are higher than the same quarter in the previous year. They also look for yearly earnings that are higher than the previous year. If the yearly earnings have not been reported yet, they may also compare the trailing EPS with the previous year’s EPS. They expect the trailing EPS to be higher as well. Some growth investors also consider earnings estimates and want to see them increasing for future quarters.
A decrease in the growth rate of quarterly or yearly earnings, or trailing EPS, is a sign of slowing growth and may indicate that the company is losing its momentum. Some growth investors may take this as a signal to exit their long positions.
A negative growth rate of quarterly or yearly earnings, or trailing EPS, means that the company is not growing at all, but shrinking. This is the opposite of what growth investors want to see. They will avoid such companies or even short them.
How is Trailing EPS Calculated
Trailing EPS is a measure of how much a company earned per share in the past 12 months. It is calculated by adding up the earnings per share (EPS) of the four most recent quarters. For instance, let’s see how to find the trailing EPS of Apple Inc. (AAPL) using some hypothetical earnings data. Suppose that on:
– April 30, 2021, Apple reported earnings of $2.46 per share.
– Jan. 29, 2021, Apple posted earnings of $4.18 per share.
– Nov. 1, 2020, Apple revealed earnings of $2.91 per share.
– July 31, 2020, Apple recorded earnings of $2.34 per share.
These are the four latest quarters, so we can use them to compute the trailing EPS of $11.89 by adding them up.
When Apple announces its next earnings on July 31, 2021, we will have to update the trailing EPS by dropping the oldest quarter from above and replacing it with the new one.
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Importance of Price to Earnings (PE)
- The price to earnings (PE) ratio is a measure of how much investors are willing to pay for each rupee of a company’s earnings per share (EPS). It helps to assess whether a company’s stock is overpriced or underpriced. A PE ratio of 20 means that it would take 20 years for the cumulative earnings to equal the price of the investment.
- A high trailing PE ratio implies that the stock price is higher than its EPS. This could indicate that the company’s shares are too costly and may decline in the future.
- The trailing price to earnings (PE) ratio is the ratio of the company’s stock price to its trailing EPS. This metric shows how the market values the company’s stock based on its past earnings per share.
- The trailing price to earnings ratio is considered more reliable as it uses actual data rather than estimates. It reflects the true performance of the company in the previous 12 months.
