Earnings Per Share (EPS)
Definition
A company's net profit divided by its number of outstanding shares, serving as a fundamental measure of profitability that drives stock valuation and P/E ratio calculations.
Earnings Per Share is one of the most important metrics in fundamental analysis. It tells you how much profit a company earns for each share of stock. If a company earns $1 billion in profit and has 500 million shares outstanding, its EPS is $2.00.
There are several EPS variants: basic EPS uses the actual number of shares outstanding, while diluted EPS accounts for stock options, convertible bonds, and other securities that could become shares. Diluted EPS is more conservative and widely used by analysts.
EPS growth is what drives stock prices over the long term. A company growing EPS at 15% annually will see its stock price roughly double every five years (all else equal). Companies that consistently grow EPS above market averages tend to be strong long-term performers.
Quarterly earnings announcements, where companies report actual EPS versus analyst estimates, are among the most important events for stock prices. A company that beats EPS estimates by even a few cents often sees its stock rise, while missing estimates can cause significant declines.
However, EPS can be manipulated through accounting choices, share buybacks (reducing the denominator), and non-recurring charges. Wise investors look at EPS alongside cash flow, revenue growth, and other metrics to get a complete picture of a company's financial health.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
Is higher EPS always better?
Higher EPS indicates more profitability per share, but context matters. Compare EPS to the stock price (using P/E ratio) and to competitors. A $10 EPS on a $50 stock is very different from $10 EPS on a $500 stock. Growth rate of EPS matters more than the absolute number.
What's the difference between basic and diluted EPS?
Basic EPS uses actual shares outstanding. Diluted EPS includes all potential shares from stock options, convertible bonds, and warrants. Diluted EPS is lower and more conservative, representing the 'worst case' of maximum share dilution. Analysts typically focus on diluted EPS.