Earnings Per Share (EPS)

FundamentalStock Market1 min read

Quick Definition

A company's profit divided by its outstanding shares, showing how much money a company makes for each share of stock.

What Is Earnings Per Share (EPS)?

Earnings Per Share (EPS) is a financial metric that measures the portion of a company's profit allocated to each outstanding share of common stock. It's one of the most important metrics for evaluating a company's profitability.

Formula: EPS = (Net Income - Preferred Dividends) / Average Outstanding Shares

Types of EPS:

  • Basic EPS: Uses actual shares outstanding
  • Diluted EPS: Includes potential shares from options, warrants, convertible securities
  • Trailing EPS: Based on past 12 months (TTM)
  • Forward EPS: Based on analyst estimates

Why EPS Matters:

  • Foundation for P/E ratio calculation
  • Tracks profitability growth over time
  • Enables comparison between companies
  • Key factor in stock valuation

Important Notes:

  • Higher EPS doesn't always mean better investment
  • Compare EPS growth rate, not just absolute numbers
  • Consider EPS quality (recurring vs. one-time gains)

Formula

Formula

EPS = (Net Income - Preferred Dividends) / Shares Outstanding

Earnings Per Share (EPS) Example

  • 1Company with $100M profit and 50M shares = $2.00 EPS
  • 2EPS growth from $2 to $2.50 = 25% earnings growth

Related Terms

Price-to-Earnings Ratio (P/E)

A valuation metric comparing a company's stock price to its earnings per share, indicating how much investors pay per dollar of earnings.

Net Income

A company's total profit after all expenses, taxes, and costs have been deducted from revenue—the "bottom line" of the income statement.

Dilution (Share Dilution)

The reduction in existing shareholders' ownership percentage when a company issues new shares, reducing earnings per share and book value per share.

Stock

A security representing ownership in a corporation, entitling the holder to a share of profits and voting rights.

Initial Public Offering (IPO)

The first sale of a company's stock to the public, transitioning it from private to publicly traded.

NASDAQ

The National Association of Securities Dealers Automated Quotations — the second-largest stock exchange globally, known for its concentration of technology and growth companies.

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