What is "Earnings Per Share (EPS)" meaning?

Earnings Per Share (EPS) is a financial metric that calculates the profit a company generates per outstanding share of common stock. It's widely used by investors to gauge a company's profitability and performance relative to its share price.

Higher EPS generally indicates a more profitable company, though it should be considered alongside other financial metrics for a comprehensive evaluation.

Example

"The company’s EPS increased by 15% this quarter, reflecting strong growth in profits and a favorable market response to their new product launch."

How is "EPS" used in business?

EPS is crucial for assessing a company’s profitability on a per-share basis, helping investors make informed decisions. It is commonly used to calculate Price-to-Earnings (P/E) ratios, which are essential for evaluating the relative valuation of stocks.

Pro Tip

Consider both basic and diluted EPS. Diluted EPS accounts for the potential dilution of shares from stock options or convertible securities, providing a more conservative estimate of earnings.

Related Terms

Price-to-Earnings (P/E) Ratio, Net Income, Dividend Payout Ratio, Return on Equity (ROE)