What is earnings per share (EPS)?
In one line: Earnings per share (EPS) is a company's profit over a period divided by the number of its shares. It shows how much profit each share stands for.
A simple example
A company earns $2 billion in profit over a year. It has 1 billion shares.
EPS = $2,000,000,000 ÷ 1,000,000,000 = $2.00 per share.
If the stock trades at $40, its P/E ratio is $40 ÷ $2 = 20. Investors are paying $20 for every $1 of yearly profit.
Basic vs diluted
Companies usually report two versions.
- Basic EPS: profit divided by the shares out there today.
- Diluted EPS: profit divided by shares plus those that could be created, like employee stock options.
Diluted is a bit lower, and many people prefer it because it's the more careful number.
Why it matters
EPS is the headline number in most earnings reports. The stock often moves on how EPS compares with what analysts expected, called the estimate or consensus.
| Result | Estimate | Actual | Often called |
|---|---|---|---|
| Beat | $1.00 | $1.10 | Above expectations |
| Miss | $1.00 | $0.92 | Below expectations |
But a beat doesn't guarantee a rise. The company's Guidance for the next quarter often matters as much.
For a plain way to read a full report, see how to use AI to read earnings reports.
A common mistake
Mixing up GAAP and adjusted EPS. GAAP EPS follows standard accounting rules. "Adjusted" EPS leaves some costs out, like one-time charges. The adjusted number is often higher. Both can be useful, but compare like with like.
A company that buys back its own shares can grow EPS even if profit stays flat, because there are fewer shares. Look at total profit too.
Questions
Is a higher EPS always better?
Not on its own. A $5 EPS on a $500 stock is a very different deal from $5 on a $50 stock. That's why people use the P/E ratio.
How often is EPS reported?
US public companies usually report every quarter, plus a full-year figure.
Can EPS be negative?
Yes. If a company loses money, its EPS is negative, and the P/E ratio can't be worked out in the usual way.
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