Earnings Per Share - EPS

What is Earnings Per Share - EPS?

Earnings per share (EPS) is the portion of a company's profit allocated to each share of common stock. EPS serves as an indicator of a company's profitability. It is common for a company to report EPS that are adjusted for extraordinary items, potential share dilution. EPS is a financial ratio, which divides net earnings available to common shareholders by the total outstanding shares over a certain period of time.

Earnings per share or EPS is an important financial measure, which indicates the profitability of a company. It is calculated by dividing the company’s net Income with its total number of outstanding shares. It is a tool that Market participants use frequently to gauge the profitability of a company before buying its shares.

EPS Formula

Earnings per share can be calculated in two ways:

1. Earnings per share: Net Income after Tax/Total Number of Outstanding Shares

2. Weighted earnings per share: (Net Income after Tax - Total Dividends)/Total Number of Outstanding Shares

EPS is very important tool for investors, it should not be looked at in isolation. EPS of a company should always be considered in relation to other companies in order to make a more informed and prudent investment decision.