Earnings per share (EPS) = Net income / Shares outstanding
Image: United States Internal Revenue Service, Public domain, via Wikimedia Commons
Earnings per share
Earnings per share (EPS) = Net income / Shares outstanding
Earnings per share (EPS) is a crucial metric for assessing a company's profitability, as it divides net income by the number of shares outstanding. This calculation provides insight into how much money each share of stock earns, making it a valuable tool for investors.
In the United States, the Financial Accounting Standards Board (FASB) mandates that EPS information be reported for various income statement categories, including continuing operations, discontinued operations, extraordinary items, and net income. This comprehensive reporting ensures that investors have a clear understanding of a company's financial performance across different segments.
Example
If a company has a net income of $1 million and 100,000 shares outstanding, its EPS would be $1 million / 100,000 shares = $10 per share.
Understanding EPS helps investors evaluate a company's profitability and make informed decisions about buying or selling its stock.
Related concepts
Dividend yield
Dividend yield = Annual dividend / Share price
Market capitalization
Market capitalization = share price × shares outstanding
price-to-earnings (P/E) ratio tells you
P/E ratio indicates how much investors are willing to pay for each dollar of a company's earnings
Cyclically adjusted price-to-earnings ratio
Price-to-Earnings Ratio (P/E) measures market value relative to earnings
Stock split
Stock split doubles shares, halves price
EBITDA measures
EBITDA measures a company's overall financial performance by showing earnings before interest, taxes, depreciation, and amortization
Educational content, not financial advice.
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