EARNINGS PER SHARE
Back to GlossaryDefinition
An important financial measure, which indicates the profitability of a company. It is calculated by dividing the company's net income with its total number of outstanding shares. The higher the EPS of a company, the better is its profitability.
Summary
Earnings Per Share (EPS) is a key financial metric that measures a company's profitability by dividing its net income by the number of outstanding shares of common stock. It represents how much profit each share of stock has earned, making it easier for investors to compare companies of different sizes. EPS is calculated as: Net Income ÷ Number of Outstanding Shares. For example, if a company earned $1 million and has 100,000 shares outstanding, the EPS would be $10 per share. This metric is fundamental for stock valuation and investment decisions.
Usage Context
Essential for understanding financial statement analysis, stock valuation methods, investment decision-making, and comparing company performance. Critical when learning about P/E ratios, dividend policies, and fundamental analysis techniques.
Common Confusions
- Confusing EPS with stock price - they are completely different metrics
- Thinking higher EPS automatically means a better investment without considering other factors
- Not understanding that EPS can be manipulated through share buybacks
- Confusing basic EPS with diluted EPS
- Forgetting that EPS is backward-looking and may not predict future performance
