What Is Earnings Per Share (EPS)?
Earnings per share is a company's profit divided by its number of shares. How EPS is calculated, the difference between basic and diluted, and why buybacks and one-off items can flatter it.
In one sentence
Earnings per share. A company's profit divided by its number of shares. Often shortened to EPS.
How it works
Earnings per share = Net income for shareholders ÷ Shares outstanding
EPS turns a company's total profit into the slice that belongs to each share, which makes it easier to compare with the share price. Companies report two versions. Basic EPS uses the shares outstanding. Diluted EPS also counts shares that could be created from stock options and convertible securities, so it's usually a little lower and the more cautious figure.
| Net income | Shares | EPS | |
|---|---|---|---|
| Last year | $200 million | 100 million | $2.00 |
| This year, after buying back 5% of shares | $200 million | 95 million | $2.11 |
EPS rose 5% while the business earned exactly the same. Whether the buyback was a good use of cash depends on the price paid for the shares.
What to watch for
- Buybacks raise EPS by shrinking the share count, as above.
- One-off items, such as selling a division, can lift a single year's EPS.
- Adjusted EPS, which some companies highlight, leaves out costs the company chooses. Compare it with the GAAP figure.
Learn it properly
- Shares Outstanding and Market CapitalizationPart 2: What You Can Own · Free
- The Income StatementPart 3: Understanding Businesses