Post by justin534 on Jun 10, 2008 23:24:52 GMT -5
I'm trying to figure out how Earnings per share is calculated. Does anyone know how exactly this would be calculated in the game, lets say for simply a software company. Lets not get too detailed yet.
Here was my calculation:
Revenue = Business Assets(Capital) * Return on Capital
Expenses = Interest Paid on Bank Loans + Working Capital + Investment on New Capital + R&D Spending
Pretax Net Income = Revenue - Expenses
Earnings Per Share = Pretax Net Income / Total Shares Outstanding
And Here is how I determined the values for
So after putting this into excel I got a EPS projection for the next quarter of $.37
The "analysts" in the game are predicting a $.45 EPS for the next quarter.
I am wondering if my projections are off mainly because I'm using a conservative estimate for ROC or if I'm calculating something wrong fundamentally?
I also dont understand how it is and hope someone can elaborate for me how it is that a firm can have positive earnings but negative cash flow?
Thank you very much everyone for taking a look at this I know its a bit detailed.
Here was my calculation:
Revenue = Business Assets(Capital) * Return on Capital
Expenses = Interest Paid on Bank Loans + Working Capital + Investment on New Capital + R&D Spending
Pretax Net Income = Revenue - Expenses
Earnings Per Share = Pretax Net Income / Total Shares Outstanding
And Here is how I determined the values for
- Interest Paid on Bank Loans
- R&D Spending
- Return on Capital
Interest Paid on Bank Loans = Borrowing Rate / 4 - In this case I'm assuming that interest payments are made quarterly, thats why I divided by 4. Am I correct here?
R&D Spending = % of revenues spent on R&D * Revenue
Return on Capital = Business Assets(Capital) * % Return on Capital - and in this case I used a conservative measure of Return on Capital, instead of going by the industry projection of 35.1% I used the previous quarter's ROC of 26.7% (which I assume ROC = Pretax operating margins?)
So after putting this into excel I got a EPS projection for the next quarter of $.37
The "analysts" in the game are predicting a $.45 EPS for the next quarter.
I am wondering if my projections are off mainly because I'm using a conservative estimate for ROC or if I'm calculating something wrong fundamentally?
I also dont understand how it is and hope someone can elaborate for me how it is that a firm can have positive earnings but negative cash flow?
Thank you very much everyone for taking a look at this I know its a bit detailed.