EPS (Earnings Per Share) — The Core Measure of Profitability


EPS — Understanding a Company’s Profit Per Share



EPS (Earnings Per Share) — The Core Measure of Profitability

EPS (Earnings Per Share) is one of the most important financial indicators used by investors.
It shows how much profit a company earns for each share of its stock — a direct reflection of profitability and financial health.

📘 What Is EPS?

EPS = Net Income ÷ Number of Outstanding Shares

For example:
If a company earns $10 million in net income and has 5 million shares outstanding,
then EPS = $10,000,000 ÷ 5,000,000 = $2.00 per share.

This means each share represents $2 of profit for that period.

💡 Why EPS Matters

  • Higher EPS = More profitable company

  • Lower or declining EPS = Possible slowdown in growth or higher costs

  • EPS is a key factor in stock valuation, dividend decisions, and investor confidence

⚖️ Types of EPS

  1. Basic EPS – Simple calculation using total shares outstanding.

  2. Diluted EPS – Includes stock options or convertible bonds that could increase share count.

    Diluted EPS offers a more realistic view of potential profit per share.

📊 EPS and PER Relationship

EPS is often used with the PER (Price-to-Earnings Ratio):

PER = Stock Price ÷ EPS

A high PER might mean the stock is expensive relative to its earnings,
while a low PER could indicate undervalued potential.

⚠️ Limitations of EPS

  • Can be affected by accounting policies or one-time events

  • Doesn’t reflect cash flow or debt levels

  • Should always be compared with industry averages and past performance

📈 In Summary

EPS shows how efficiently a company turns revenue into profit per share.
It’s a core metric for investors evaluating growth, performance, and long-term potential.

Official Sources:

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