Earnings per share (EPS) measures a company's profitability by dividing net income by the number of outstanding shares. It is a key indicator used by investors to gauge financial performance.
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EPS is calculated as (Net Income - Dividends on Preferred Stock) / Average Outstanding Shares.
There are two types of EPS: Basic EPS and Diluted EPS, with diluted accounting for potential shares from options or convertible securities.
A higher EPS indicates better profitability and is often seen as a sign of strong financial health.
Companies report EPS in their quarterly and annual financial statements under the income statement section.
The Price/Earnings (P/E) ratio uses EPS in its calculation to help evaluate if a stock is over or undervalued.