Introduction

Earning Per Share and Dividend are two amongst the many Financial Metrics, used by Research Analyst in order to understand the fundamentals of the company.

Before understanding the difference between Earning Per Share (EPS) and Dividend, let us take a quick moment to understand the meaning of these financial metrics.

What is Earning Per Share (EPS)

Earning Per Share (EPS) is defined as a company’s profitability in a Financial Year. This shows how much profit each outstanding share of stock has made in that Financial Year.

It is calculated by dividing Net Income by the Total Number of Outstanding Shares of the company.

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Earning Per Share Formula

Earning Per Share (EPS) = Net Earning of a company / Total shares of a company.

Where, Net Earning of a company is the total profits (Profit After Tax) is made by the company in a particular financial year.

Total shares of a company is the total number of shares that are available for its investor to buy and sell. Total shares of the company can also be calculated by Market Capitalisation of the company divided by the current price of the stock.

What is Dividend

Dividend is defined as the portion of the profit passed on to its stakeholders / investors.

The management of the company makes the decision to pay dividends to its stakeholders / investors as a reward for their continued investment, using the profits of the company.

Dividend Formula

Dividend = Face Value of the company * Percent of Face Value allocated as Dividend.

Where, Face Value of a company is the nominal value of the stock. It simply means the original cost of the stock as listed in the certificate. The Face Value of a stock is a fixed price (Unless the company goes for Stock Split).

The management of the company allocates a certain percent of the Face Value as dividends to shareholders.

Difference Between Earning Per Share and Dividend

Difference in Terms of Profitability

Earning Per Share, is the total profit per share made my the company for the financial year. In this case, the profits earned by the company are present in company. The company can use these profits for expansion, growth, and storing as reserves.

On the other hand, the stakeholders / investors receive dividends, which are a part of the profits. In this case, the company decides to pass on the profit to its investors and reward them for their continued support to stay invested.

Difference in terms of which party benefits

In the case when Earning Per Share (EPS) is higher, the company benefits. The company can now use this money for its growth and expansion. The company as an entity has the right to use its money for bearing future benefits.

When the company declares a dividend, investors and stakeholders benefit by receiving a portion of the profits as a reward.

Difference in Control on the Financial Metrics

Earning Per Share (EPS) is a financial metrics that is dependent on the profitability of the company. If the company earns higher profits, its EPS will be higher. It depends on the overall performance of the company and the yield it made after deduction of all taxes.

The management of the company declares profits as dividends. It is based on the decision of the management and not linked to the magnitude of profitability.

Therefore, management has the sole right to declare dividends for a particular year or reinvest the profits for company’s growth.

Understanding with an Example

Consider a company ABC Limited with the following financial statement. The total company composition consists of 10 lakhs free shares. Each stock of the company is trading at Rs. 1500. The company has declared a profit of Rs. 20 Crores in Financial year 2023-2024. The Face Value of the company is Rs. 10. Consider the company has declared a dividend of 200% of the Face Value.

Thus, the above example calculates the Earning Per Share (EPS) as follows:

EPS = Total Profit made by the company / Total shares of the company = Rs. 20 Crores / 10 Lakhs = Rs. 200.

This means, against each share, the company has earned Rs. 200.

We calculate the Dividend as follows:

Dividend = Face value of the company * percent of Face Value of Dividend declared by company = Rs. 10 * 200% = Rs. 20.

Thus, from the above example, the company has declared a dividend of Rs. 20 per share.

The total dividend declared by the company is Rs. 2 Crore. (Rs. 20 * 10 lakh shares).

Similarly, if person A is holding 5000 shares of the company, the profit as dividend passed on to the investor is Rs. 1 lakh (5000 shares * Rs. 20 per share dividend declared).

Consider the 5 year Financial Metric (EPS and Dividend) of ABC Limited.

Financial Year	EPS	Dividend
FY 2019-20	Rs. 300	Rs. 0
FY 2020-21	Rs. 350	Rs. 0
FY 2021-22	Rs. 400	Rs. 0
FY 2022-23	Rs. 250	Rs. 25
FY 2023-24	Rs. 200	Rs. 20

Following inferences can be drawn from the above example:

• The EPS of the company has constantly increased, which means the company was constantly making more profit per share. Yet the company did not declare dividends.
• For FY 2022-23, the EPS of the company declined, still the company has declared dividends to its stakeholders.

The company passes its actual realised profit as dividends to its stakeholders. Hence, the earning from dividend is that portion of the profit which the investors can use for their personal interest.

Earning Per Share (EPS) is a financial metrics, that displays the profitability of the company. The company has made the profit, but the stakeholders / investors cannot claim the profits of the company.

Summary

Earning Per Share (EPS)	Dividend
EPS shows how much a profit has been made by each share of the company.	Dividend is the declared profit distributed by the company to its investors.
EPS is the tangible profit made by the company. The profits remain with the company.	Dividend is the passed on benefit to its investors / stakeholders as a reward.
EPS is linked to the profitability of the company for the financial year.	Dividend is declared based on company management decision.
Higher the EPS means, the company is making higher profits.	Dividend is independent on the degree of profitability of the company and solely based on management call.

Also Read: 5 Reasons Why Companies Buy Back Their Own Shares