How to Calculate Your Stock Earnings

By Shannon C , last updated October 13, 2011

When you are figuring out how to calculate your stock earnings, you have several helpful tools at your disposal. Whether you want to use one of the many free online calculators that are sponsored by financial websites or do a pen and paper calculation on your own, the important factor is to make sure that you are on target with your financial earnings and rate of return on investment to be building the financial portfolio you need to comfortably live on when you want to retire. Learn about how to calculate your stock earnings and take the tips that are most useful to you.

How to Calculate Your Stock Earnings

You will want to use a ratio called Price to Earnings to Growth, or PEG, to calculate your future stock earnings. This is a calculation that should ideally be done before each new stock purchase, as well as on a regular basis as you monitor and adjust your portfolio. With this calculation, you will be performing two calculations in one, according to Investopedia. In the first calculation, you will be looking at the stock's present day value. In the second, you will be investigating its potential for growth in earnings over the time you plan to hold the stock.

PEG Calculation: To perform the PEG calculation, you need to know the earnings per share of the stock you are holding. This number represents the current market value to date of a share of the stock. You can find this information by monitoring market activity through sites such as The Wall Street Journal's Market Watch. You will then need to divide that number into the most recently released annual earnings per share to find the price-to-earnings ratio. Once you have this information handy, you can then divide the price-to-earnings ratio again by the expected future earnings growth (called "expected earnings") you will have completed the PEG formula. One you know the value of the PEG formula, you can tell whether the stock is over- or under-performing its peers in terms of stock earnings annually.

EPS Calculation: You can also use the earnings per share ratio to calculate your stock earnings on a per share basis. To perform this calculation, you will need certain pieces of information from the issuing company, including the net annual income, the annual value of preferred dividends paid out, and the number of shares of common stock that are currently in circulation. To calculate EPS, take the net income and subtract out the preferred dividends, then divide by the number of common stock shares. This calculation will give you the very valuable "earnings per share" ratio which is also a useful measure of calculation to stack up your stock portfolio against how competing stocks are performing.

Experts caution that these calculations are nothing more than estimates that are trying to factor in current numbers to predict future performance. As in all things stock market, it is important to build a diversified investment portfolio to account for instances in which even the best calculations may not perform up to standard.

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The Price Earnings Ratio is a formula used to estimate the value of a company's stock and the potential for future earnings. It is known as P/E ratio for short ...
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