Trailing Earnings Per Share (EPS)

What Is Trailing Earnings Per Share (EPS)?

Trailing earnings per share (EPS) is a company's earnings generated over a prior period (often a fiscal year) reported on a per-share basis.

The term "trailing" moreover implies a value calculated on a rolling basis. That is, trailing EPS might describe the latest year period or four earnings releases. The period used for a trailing EPS will change as the latest earnings are added to the calculation and earnings from five quarters back are dropped from the calculation.

Understanding Trailing Earnings Per Share (EPS)

Earnings per share (EPS) is calculated as a company's profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company's profitability. The higher a company's EPS, the more profitable it is considered to be.

The descriptive word "trailing" implies "previous years," as opposed to a present or forward-looking EPS. Most recorded and quoted EPS values are trailing.

A trailing EPS often uses the previous four quarters of earnings in its calculation and has the benefit of utilizing genuine numbers instead of projections. Most price to earnings (P/E) ratios are calculated utilizing the trailing EPS because it represents what's really happened, and not what could happen from here on out. Albeit the figure is accurate, the trailing EPS is "old news," and numerous investors will likewise take a gander at current and expected future EPS figures. Future EPS estimates are based on analyst expectations and are called earnings forecasts.

Trailing EPS enables trend analysis. Analysts will commonly compare different quarters on a trailing basis while keeping a close eye on a particular quarter. For instance, the fourth quarter for a retailer (Christmas and Holiday season) is particularly important. Analysts will compare fourth-quarter year-over-year changes in key fundamentals, while additionally comparing the trailing year results for these periods.

Trailing EPS for public companies are widely reported on financial news sites.

Growth or Decline in Trailing EPS

Growth investors hope to invest in companies that are increasing earnings quarter-over-quarter and especially year-over-year. They can analyze trailing EPS or yearly EPS to see assuming the company is doing that.

Growth investors need to see quarterly earnings increase relative to the same quarter in the prior year. They likewise need to see earnings for the fiscal year higher than the prior fiscal year. What's more, in the event that the fiscal year results have not been reported yet, the investor may likewise check out at the trailing EPS and compare it to the prior fiscal year. Trailing EPS will ideally be higher.

Some growth investors likewise see earnings forecasts and will need to see forecast earnings for future quarters additionally moving up.

A drop in the percentage increase from one quarter to another or year-to-year is declining growth and signs the company is as yet becoming however not at the same pace it once was. For some growth investors, this is a warning sign to begin getting out of long positions.

If quarterly or yearly EPS, or trailing EPS, is falling relative to prior figures, then there is no growth and the company is seeing a contraction. This isn't the type of action growth investors are searching for.

Example of Trailing EPS

For example, let's glance at a hypothetical period for Apple Inc. (AAPL) earnings. Assume that on:

• On April 30, 2021, Apple announced earnings of $2.46
• On Jan. 29, 2021, they announced earnings of $4.18.
• On Nov. 1, 2020, they declared earnings of $2.91.
• On July 31, 2020, earnings were $2.34.

Assuming that these were the four latest quarters, these figures would be used to generate the trailing EPS of $11.89.

When the next earnings release comes out, the oldest period from above will be dropped. For example, in the event that Apple releases earnings on July 31, 2021, the earnings from July 31, 2020, will be dropped from the calculation and be replaced by the newer figure.

Features

• Trailing EPS shows what happened in the past, however does not forecast what might happen from now on.
• To forecast future earnings, traders and analysts apply models to extrapolate prior EPS figures, as well as see earnings forecasts.
• EPS is a widely-used measure of a company's profitability.
• Trailing EPS typically refers to a company's earnings per share as a rolling total over the previous four quarters.