Earnings Per Share - EPS

Loading the player...

What is 'Earnings Per Share - EPS'

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

Calculated as:

Earnings Per Share (EPS)

When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.

Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number.

BREAKING DOWN 'Earnings Per Share - EPS'

Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio.

For example, assume that a company has a net income of $25 million. If the company pays out $1 million in preferred dividends and has 10 million shares for half of the year and 15 million shares for the other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from the net income to get $24 million, then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5 x 15M = 12.5M).

An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) - that company would be more efficient at using its capital to generate income and, all other things being equal, would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures.

For more on EPS read The 5 Different Types Of Earnings Per Share (EPS) and How To Evaluate The Quality Of EPS

RELATED TERMS
  1. Basic Earnings Per Share

    A rough measurement of the amount of a company's profit that ...
  2. Cash Earnings Per Share - Cash ...

    A measure of financial performance that looks at the cash flow ...
  3. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  4. Diluted Earnings Per Share - Diluted ...

    Diluted Earnings Per Share (or Diluted EPS) is a performance ...
  5. Diluted Normalized Earnings Per ...

    A company's profit less one-time earnings, divided by both outstanding ...
  6. Trailing EPS

    The sum of a company's earnings per share for the previous four ...
Related Articles
  1. Markets

    The 5 Types Of Earnings Per Share

    A look at the five varieties of EPS and what each represents can help an investor determine whether a company is a good value, or not.
  2. Fundamental Analysis

    Assess Shareholder Wealth With EPS

    Find out if management is doing its job of creating profit for investors.
  3. Economics

    The 5 Types Of Earnings Per Share

    Understanding the many varieties of earnings per share will help investors make informed decisions.
  4. Forex Education

    The Dangers Of Share Dilution

    Investors need to be aware of the existence of dilutive securities and how they can affect existing shareholders.
  5. Investing Basics

    The Weighted Average Of Outstanding Shares

    The quantity of a company’s outstanding shares changes when it issues new shares, repurchases or retires existing ones, or converts others.
  6. Active Trading

    Value Investing: Finding Value In Income Statements

    A company's income statement basically tells you how much money it has taken in and how much it has paid out over a year or a quarter. Looking at the annual income statement rather than a ...
  7. Markets

    Investment Valuation Ratios

    Learn about per share data, price/book value ratio, price/cash flow ratio, price/earnings ratio, price/sales ratio, dividend yield and the enterprise multiple.
  8. Markets

    P/E Ratio: What Is It?

    P/E is short for the ratio of a company's share price to its per-share earnings. As the name implies, to calculate the P/E, you simply take the current stock price of a company and divide by ...
  9. Investing Basics

    The Basics Of Outstanding Shares And The Float

    We go over different types of shares and what investors need to know about them.
  10. Fundamental Analysis

    Comparing the P/E, EPS And Earnings Yield

    Here are three ratios that help investors value stock returns.
RELATED FAQS
  1. What is the formula for calculating earnings per share (EPS)?

    Learn why earnings per share (EPS) is often considered to be one of the most important variables in determining a stock’s ... Read Answer >>
  2. What does it signify about a company if there is a large difference between its EPS ...

    Learn more about basic earnings per share and diluted earnings per share, what the ratios measure and what a large discrepancy ... Read Answer >>
  3. What's the difference between basic shares and fully diluted shares?

    Find out more about basic outstanding shares, fully diluted shares, the difference between the calculation of shares and ... Read Answer >>
  4. What is the difference between earnings per share and dividends per share?

    Learn what earnings per share and dividends per share are, how the two ratios are calculated and the main difference between ... Read Answer >>
  5. How do you find the level of EBIT where EPS doesn't change?

    Learn about the relationship between earnings before interest and taxes (EBIT and earnings per share (EPS) and how to find ... Read Answer >>
  6. What is the difference between authorized shares and outstanding shares?

    Calculating financial ratios can help investors understand a company's financial position, but only when a knowledge of various ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center