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Glossary

Earnings per Share (EPS)

Earnings per Share (EPS) measures how much of a company’s profit is allocated to each outstanding share of common stock, providing a standardized way to assess profitability on a per-share basis.

Luca Moschini

— 2 min read

Definition

Earnings per Share (EPS) represents the portion of a company’s net income that is attributed to each outstanding share of common stock. It is one of the most widely used measures of corporate profitability.

EPS helps translate total earnings into a per-share figure, making it easier to compare companies of different sizes and to evaluate financial performance across reporting periods.

How It Works

EPS is calculated by dividing a company’s net income, after preferred dividends, by the weighted average number of common shares outstanding during a period. The weighted average accounts for changes in share count caused by stock splits, issuances, or buybacks.

There are multiple forms of EPS, including basic EPS, diluted EPS, and adjusted EPS, each reflecting different assumptions about potential share dilution or non-recurring items.

Why the Term Matters

EPS plays a central role in financial analysis because it directly influences valuation metrics such as the price-to-earnings (P/E) ratio. Changes in EPS often affect how a company’s financial performance is perceived relative to peers and historical results.

Because EPS reflects profitability on a per-share basis, it is commonly used to assess growth, compare competitors, and evaluate earnings consistency over time.

  • Net Income
  • Diluted EPS
  • Price-to-Earnings (P/E) Ratio
  • Return on Equity (ROE)
  • Dividends

FAQs

What is Earnings per Share (EPS)?
Earnings per Share (EPS) is a financial metric that shows how much profit a company generates for each outstanding share of common stock.

How is EPS calculated?
EPS is calculated by subtracting preferred dividends from net income and dividing the result by the weighted average number of common shares outstanding.

What is the difference between basic EPS and diluted EPS?
Basic EPS uses the current share count, while diluted EPS includes the impact of potential shares from options, warrants, or other convertible securities.

Why can EPS be misleading?
EPS can be affected by share buybacks, accounting adjustments, or one-time items, which may distort the underlying profitability of a company.

How is EPS used in valuation?
EPS is a key input in valuation ratios such as the price-to-earnings (P/E) ratio, which compares a company’s share price to its earnings.

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