What is Earnings Per Share (EPS)?
5paisa Research Team
Last Updated: 26 Feb, 2025 10:28 PM IST

Content
- What is Earnings Per Share (EPS)?
- Formula and Calculation for EPS
- Example of EPS
- Types of Earnings Per Share
- Importance of EPS
- How Is EPS Used?
- Limitations of EPS
- Diluted EPS vs. Basic EPS
- Adjusted EPS v/s EPS
- What Is a Good Earnings Per Share Ratio?
- Conclusion
Earnings per share (EPS) shows how much profit a company makes for each share of its stock. Investors use EPS to gauge a company's profitability and potential returns. High EPS suggests good profit-making potential and efficient use of investor funds.
To calculate EPS, subtract preferred dividends from net income, then divide by outstanding shares. Net income is what's left after deducting all expenses. Understanding EPS helps investors assess investment value and compare companies effectively.
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Frequently Asked Questions
The main factors that affect the earnings per share of a company are its earnings or income and the number of common shares outstanding.
The Diluted EPS Formula is: Diluted EPS=Net Income−Preferred Dividends/Total Number of Diluted Shares Outstanding
Where the Total Number of Diluted Shares Outstanding includes basic shares outstanding plus the exercise of in-the-money options, warrants, and other dilutive securities.
Basic EPS is calculated by dividing a company's net income after taxes by its weighted average shares outstanding during a specific period.
Earnings per share (EPS) can be negative when a company's income is negative, indicating it's losing money or spending more than earning. However, a negative EPS doesn't automatically mean the stock is a sell. It's essential to analyze the reasons behind the loss, the company's potential for recovery, and other financial indicators before making investment decisions.