Fundamental analysis
Earnings per share (EPS)
Definition
EPS is a company's net income, minus any preferred dividends, divided by its average number of common shares outstanding. Companies report basic EPS and diluted EPS, which also counts the shares that options and convertible securities could add. Our guide to financial statements shows where it sits on the income statement.
Example
Say company XYZ earns $75 million in net income and pays $3 million in preferred dividends, leaving $72 million for common shareholders. With an average of 24 million common shares outstanding, basic EPS is $72 million ÷ 24 million = $3.00. If employee stock options could add 1 million shares, diluted EPS is $72 million ÷ 25 million = $2.88, the more conservative figure.
Hypothetical numbers, for illustration only.
Also defined in
- P/E Ratio Explained: How to Use the Price-to-Earnings Ratio→ How to calculate the P/E ratio
- CAN SLIM Strategy: William O’Neil’s 7 Rules for Growth Stocks→ C and A: current quarterly and annual earnings growth
- How to Pick Growth Stocks: A 7-Step Process With Examples→ Step 2: Read the numbers: growth, acceleration, margins, guidance, debt
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