Earning per share: net profit or operating profit

[markyears]

This topic is not a question about technical issue but rather some discussion about the mechanism of the game and the strategy of the game.

I'm a little confused about the calculation of earning per share. In this game, I guess it is based on operating profit rather than net profit (which includes the profit from stock). Moreover, I have a feeling that the stock price of my corporation is mainly determined by the operating profit, not the net profit.

I have very little knowledge about finance or economy, so I don't know what's going in reality. But in the game, because of this mechanism, I am less motivated to set up subsidiaries or leave the acquired corporation as subsidiaries.

The reason is the following: If I control a subsidiary, and it can make good profit, then my net worth or my net profit will be very good since usually P/B ratio is larger than 1. I will be more benefit when I own its stock than I own its asset directly (merger). But of course this net profit increase cannot help my operating profit, and my stock price (or player's personal wealth) is not significantly increasing. So I would rather merge the subsidiary and enjoy their operating profit directly, not being Warren Buffett.

Please tell me if I'm making any sense.

[geek180]

Really good points. i'd love to see a response from the devs.

[markyears]

Really good points. i'd love to see a response from the devs.

Thanks! I did some more research and found out the dividend received is in fact included in the earning per share, otherwise those stock focus companies wouldn't have any earning. In fact they have some small but positive earning per share, and I checked that and found out they are consistent with dividend received. I'm not sure whether this small earning will have any impact on the company's own stock price though.

Another related observation is for a private company, earning from dividend is not considered by IPO when the company go public.

So based on these observations, I have some suggestions:
1) Dividend received may be considered in IPO? It is profit.
2) I understand the investment in other company's stock may not be considered operating profit. But for the part has been "cashed out", it may be put into operating profit. What I mean is, suppose I purchase 10,000 shares from a company at 10.00 and after a year, the price is 20.00. Well, if I never sell my stock, it is hard to say I am making money since the price may drop later. But let's say, I sell 5,000 shares at 20.00 at the end of the year. Then IMO 5,000*(20.00-10.00)=50,000 should be accounted operating profit, like in hedge fund or investment company.

[Njeroe]

Stock returns are also applied in the income statement I saw. So if your subsidiary is public and growing it should add those returns to your net profit. Earnings per share should be net profit divided by outstanding shares so it should count towards it.