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Earnings per share (EPS) definition
Earnings per share, or EPS, is a company's net profit divided by its number of shares outstanding. It expresses company-wide profit as a figure attached to a single share, which makes profitability comparable across companies of different sizes.
You calculate it by taking net profit, sometimes after subtracting preferred dividends, and dividing by the shares outstanding. Basic EPS uses the current share count, while diluted EPS also counts shares that could be created from options, warrants, and convertible securities, giving a more cautious figure. Rising EPS over time points to growing profitability per share.
EPS is not the same as net profit. Net profit is the company's total earnings, whereas EPS slices that total across every share, so two companies with identical profits can report very different EPS depending on their share counts. EPS also pairs with the P/E ratio, which divides the share price by EPS to show how much the market pays for each unit of earnings.
Earnings per share (EPS) Example
You look at a company that reports a net profit of USD 200 million and has 50 million shares outstanding. You work out EPS:
EPS = net profit √∑ shares outstanding
USD 200 million √∑ 50 million = USD 4
Each share earns USD 4 of profit. If the share trades at USD 60, dividing price by EPS gives a P/E ratio of 15.
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