Earnings Per Share (EPS)
EPS is the portion of a company's profit allocated to each outstanding share of common stock, serving as an indicator of profitability.
Concept map
Learn, apply, review
Definition
EPS is the portion of a company's profit allocated to each outstanding share of common stock, serving as an indicator of profitability.
Use case
Used in equity analysis workflows, analysis, and technical interviews.
Judgment check
Useful only when the assumptions and inputs behind the metric are understood.
Deep dive
How to think about Earnings Per Share (EPS)
EPS = (Net Income - Preferred Dividends) / Weighted Average Shares Outstanding. There are several EPS variants: Basic EPS uses actual shares; Diluted EPS accounts for convertible securities; Trailing EPS uses past 12 months; Forward EPS uses analyst projections. EPS growth is closely watched by investors.
Example: Company XYZ reports $100M net income, pays $5M preferred dividends, and has 31.6M weighted average shares. EPS = ($100M - $5M) / 31.6M = $3.01. If the stock trades at $60, the P/E ratio is 20x.
Rank-ready answer
Definition, example, and interview framing
EPS is the portion of a company's profit allocated to each outstanding share of common stock, serving as an indicator of profitability.
Company XYZ reports $100M net income, pays $5M preferred dividends, and has 31.6M weighted average shares. EPS = ($100M - $5M) / 31.6M = $3.01. If the stock trades at $60, the P/E ratio is 20x.
In an interview, define Earnings Per Share (EPS), explain where it appears in a real finance workflow, then name one assumption or limitation that a reviewer should check.
FAQ
Frequently Asked Questions
What is Earnings Per Share (EPS)?
EPS is the portion of a company's profit allocated to each outstanding share of common stock, serving as an indicator of profitability.
How is Earnings Per Share (EPS) used in finance?
EPS = (Net Income - Preferred Dividends) / Weighted Average Shares Outstanding. There are several EPS variants: Basic EPS uses actual shares; Diluted EPS accounts for convertible securities; Trailing EPS uses past 12 months; Forward EPS uses analyst projections. EPS growth is closely watched by investors.
Can you give an example of Earnings Per Share (EPS)?
Company XYZ reports $100M net income, pays $5M preferred dividends, and has 31.6M weighted average shares. EPS = ($100M - $5M) / 31.6M = $3.01. If the stock trades at $60, the P/E ratio is 20x.