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All trading basics

Earnings Per Share ("EPS")

Earnings Per Share ("EPS") = (Net Income minus Dividends on Preferred Stock) ÷ Average Outstanding Shares

The most widely used ratio, it tells how much profit was generated on a per share basis.

Things to remember

  • Diluted EPS means that the outstanding shares include any convertibles or warrants outstanding.
  • If the company issues more shares then EPS are much harder to compare to previous years.
Balance Sheet
Consolidated balance sheet and consolidated income statement for Cory’s Tequila Co. for 1998 and 1999
Income Statement
Consolidated income statement for Cory’s Tequila Co. for 1998 and 1999

For Cory's Tequila Co. = $0.65

EPS Analysis:

The earnings per share ratio is mainly useful for companies with publicly traded shares. Most companies will quote the earnings per share in their financial statements saving you from having to calculate it yourself. By itself, EPS doesn't really tell you a whole lot. But if you compare it to the EPS from a previous quarter or year it indicates the rate of growth a company's earnings (on a per share basis). Cory's Tequila Co.'s EPS have increased almost 50% since last year, an excellent growth rate.

It should be noted that the 65 cents EPS is a "trailing" number, using the previous 4 quarters of earnings. Some analysts like to use "projected" EPS to analyze a stock's current value using future estimates.