Definition of Earnings Per Share – EPS

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Earnings per share (EPS) is the part of a company’s net profit obtained by each outstanding share of common stock. Earnings per share is a financial metric, that indicates the profitability of a company.

Earnings Per Share Formula:

We can calculate EPS by using the formula below:

Earnings Per Share Formula

The number of outstanding shares of a company may change over time. When calculating EPS, to get a more accurate scenario you should use a weighted average number of outstanding shares during the reporting period.

However, you may simplify the calculation by taking the number of shares outstanding at the end of the period.

Earnings Per Share calculated by this way is called Basic EPS. Basic EPS considers only the capital provided by shareholders, both common and preferred.

But there is an expanded form of EPS called Diluted EPS. It is calculated based on the total capital employed. It includes the shares of convertible or the pending guarantees in the number of shares outstanding.

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