Earnings Per Share (EPS)
A key profitability metric showing the portion of company profit allocated to each outstanding share of common stock, widely used in valuation analysis.
Earnings Per Share (EPS)
A key profitability metric that shows the portion of a company’s profit allocated to each outstanding share of common stock, calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding.
For instance, if a corporation earns $20 million in net income after preferred dividends with a weighted average of 10 million common shares outstanding during the year, its basic EPS would be $2.00 per share.
EPS serves as a fundamental measure of corporate performance and a building block for investment analysis. Basic EPS uses actual outstanding shares, while diluted EPS incorporates the potential impact of convertible securities and stock options. Rising EPS generally indicates improving profitability on a per-share basis, though the quality of earnings and source of growth (revenue increases versus cost cutting or share repurchases) should be considered. EPS forms the denominator in the price-to-earnings (P/E) ratio, one of the most widely used valuation metrics.