Earnings per share (EPS)

Definition

Earnings per share (EPS) is a financial metric that indicates the profitability of a company allocated to each outstanding share of common stock. It is calculated by dividing net income by the number of outstanding shares.

5 Must Know Facts For Your Next Test

1. EPS = (Net Income - Dividends on Preferred Stock) / Average Outstanding Shares
2. A higher EPS generally indicates better profitability and can make the company's stock more attractive.
3. EPS can be affected by changes in net income, the number of shares outstanding, and share buybacks.
4. Companies report EPS in their quarterly and annual financial statements.
5. There are two types of EPS: Basic EPS and Diluted EPS, where diluted EPS accounts for potential shares from options, warrants, and convertible securities.

Review Questions

• How do you calculate Earnings Per Share (EPS)?
• What does a higher EPS indicate about a company's financial health?
• What is the difference between Basic EPS and Diluted EPS?

Related terms

P/E Ratio: Price-to-Earnings Ratio measures a company's current share price relative to its per-share earnings.

Net Income: The total profit of a company after all expenses have been deducted from revenues.

Dividends: Payments made by a corporation to its shareholder members, usually derived from profits.