There are numerous ways you can compare shares to figure out which ones you want to invest in.  For example you can look at how expensive the share prices are and pick a company whose shares fit in with your budget.  But this isn’t really as easy as it sounds.  The company with the cheaper shares could have any number of reasons for proving to be a bad investment as opposed to the company with the more expensive shares.

The problem is that you can never accurately compare two sets of shares together easily.  You need to look at so many different factors that you will end up with a confusing picture that doesn’t allow you to figure out which shares are the best ones to invest in.

So what do you do?  How do you figure out a solution?

The answer lies in EPS – earnings per share.  This reduces everything to the same level and makes it much easier to work out which shares you want to invest in.

You need to understand however that this piece of information should not be the only one to base your decision on.  You should look at other aspects of the company’s situation as well to make a final decision.  But bear that in mind as we take a closer look at earnings per share.

How do you work this out?  It’s quite simple – you need to know two things about each company.  Firstly you need to know what its net earnings are and secondly you need to know how many shares it has which are still outstanding.  You then divide the earnings by the shares.

For example say you have found a company that makes $10,000 and has 50 outstanding shares.  This would make the EPS 200.  Alternatively a company with a net profit of $50,000 and outstanding shares totaling 200 would have an EPS of 250.  This would make the second company the better one to focus on in terms of earnings per share.

But you do need to factor in other circumstances as well.  To look at extremes, let’s suppose the company with the higher EPS has had bad press recently.  It may have stirred up some doubt over its future.  In contrast the other company has been doing well and expanding in several areas, making it liable for the more promising future.

Which one would you invest in as a result?  Always consider all your options before investing, whatever the EPS might be.