earnings per share
/ ER-ningz per shair — abbreviated EPS /
Imagine three friends jointly own a small company and split it into 100 ownership slips. At year-end the company earns 10,000. A natural question is: how much profit belongs to each single slip of ownership? Divide 10,000 by 100 slips and you get 100 per slip. Earnings per share is exactly this idea applied to a real company's shares of stock — the slice of profit attributable to each one.
Precisely, earnings per share (EPS) is a company's net income divided by the number of shares of common stock outstanding (with an adjustment for any preferred dividends, which belong to preferred shareholders first). If net income is 1,000,000 and there are 500,000 shares, EPS is 2.00 — meaning 2 dollars of profit earned for each share during the period. Companies report a basic EPS and often a diluted EPS, which also counts shares that could be created from things like stock options, giving a more cautious figure.
EPS matters because it puts profit on a per-share footing, which is how shareholders actually experience it and how stock prices are quoted. It feeds the price-earnings ratio, one of the most common valuation tools, and listed companies are required to show it on the income statement. The caveat: EPS can be raised simply by reducing the share count (for example through buybacks) even if total profit did not grow, so a rising EPS is not always proof that the underlying business got bigger.
A company with 1,000,000 of net income and 500,000 shares outstanding reports basic earnings per share of 2.00 — the profit each single share earned over the year.
EPS = net income divided by shares outstanding, profit on a per-share basis.
EPS can rise from share buybacks shrinking the denominator rather than from real profit growth, so always check whether net income itself actually increased.