What is EPS?
In short
Earnings per share: net profit divided by the number of shares outstanding.
Also known as: earnings per share
EPS (earnings per share) is the part of a company's net profit attributable to one share. It is among the most used fundamental metrics and the basis of P/E.
Formula
- EPS = (net income − preferred dividends) ÷ weighted average common shares
Without preferred stock it is simply net income ÷ shares. Basic EPS uses the current share count; diluted EPS also counts securities that could become shares, such as options and convertible bonds — it is slightly lower and more conservative.
What to watch
- The trend matters more than one quarter's number.
- Buybacks: when a company repurchases stock (buyback), the share count falls and EPS rises even if profit doesn't.
- Dilution: issuing new shares (dilution) lowers EPS.
- GAAP vs adjusted: companies often also report "adjusted EPS" excluding one-off costs. Keep the two apart.
In a quarterly earnings report, the market compares EPS with what analysts expected.
Net income is $20m in all four cases. When the share count shrinks (buyback) EPS rises; when it grows (dilution) each share gets less profit.
Example
Illustrative: net income $500M, preferred dividends $20M, weighted average shares 240M.
- Basic EPS: ($500 − $20) ÷ 240 = $2.00.
- Options could add another 10M shares: diluted EPS = $480 ÷ 250 = $1.92.
- The company buys back stock, cutting the share count to 220M with the same profit: $480 ÷ 220 ≈ $2.18 — EPS up about 9.1% with no profit growth.
Mistakes and tips
Compare EPS growth with net income growth: a big gap may be due to buybacks.
If adjusted EPS is always far above GAAP EPS, check which costs are being called 'one-off'.
Don't compare EPS across companies directly — $5 EPS isn't 'better' than $1 EPS; prices and share counts differ.
Frequently asked questions
- What does negative EPS mean?
- The company made a loss in that period. P/E can't be calculated then, so the company has to be valued with other metrics.
- What is the difference between basic and diluted EPS?
- Diluted EPS accounts for options and convertibles turning into shares, so it is usually lower and more conservative.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
- Fundamental analysis basicsThe three financial statements, reading the income statement line by line, margins, EPS, share count, ROE/ROIC and a business-quality checklist.Open lesson · 12 min
- Valuation: P/E, P/S, EV/EBITDA and PEGIs a stock expensive or cheap? Trailing vs forward P/E, P/S, P/B, P/FCF, EV/EBITDA, PEG, earnings yield, historical ranges and valuing a company with scenarios.Open lesson · 13 min
- Earnings seasonCompanies report every quarter: the calendar, consensus, beats and misses, guidance, the conference call, the expected move, gaps and drift, and managing a position into a report.Open lesson · 13 min
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