Reading the accounts
Earnings per share
Also called EPS
Net income divided by the number of shares — the profit attributable to each share you own.
How it works
EPS converts a company-level figure into a per-share one, which is what matters to an owner of shares rather than of the whole company.
Diluted EPS uses the share count that would exist if all options and convertibles were exercised, and is the more conservative figure.
Where it misleads people
EPS can grow while profits do not, purely through buybacks reducing the share count. Whether that is value creation depends entirely on the price paid for the shares.
Formula
EPS = (net income − preferred dividends) ÷ weighted average shares outstandingRelated terms
- Net incomeWhat is left after every cost, including interest and tax — the profit belonging to shareholders.
- P/E ratioThe share price divided by earnings per share — roughly, how many years of current profit you are paying.
- Share buybackA company buying its own shares in the market, reducing the number in issue.
- DilutionThe reduction in your ownership share when a company issues new shares.
- Shares outstandingThe total number of a company’s shares currently held by all its investors.
Mentioned in
More in Reading the accounts
- Economic profit
- Fixed costs
- EBITDA
- Free cash flow
- DuPont analysis
- GAAP and IFRS
- Depreciation and amortisation
- Going concern
All 51 Reading the accounts terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.