Earnings Per Share (EPS)

Earnings per share (EPS) is calculated as a company's profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company's profitability. It is common for a company to report EPS that is adjusted for extraordinary items and potential share dilution. The higher a company's EPS, the more profitable it is considered to be.

Formula and Calculation for Earnings Per Share (EPS)

Earnings per share value is calculated as net income (also known as profits or earnings) divided by available shares. A more refined calculation adjusts the numerator and denominator for shares that could be created through options, convertible debt, or warrants. The numerator of the equation is also more relevant if it is adjusted for continuing operations.

Earnings per Share = (Net Income − Preferred Dividends) / End-of-Period Common Shares Outstanding

To calculate a company's EPS, the balance sheet and income statement are used to find the period-end number of common shares, dividends paid on preferred stock (if any), and the net income or earnings. It is more accurate to use a weighted average number of common shares over the reporting term because the number of shares can change over time.

Source: Investopedia, Earnings Per Share (EPS): What It Means and How to Calculate It, accessed 24 December 2023, <https://www.investopedia.com/terms/e/eps.asp>