Earnings Per Share (EPS)
In short
Net profit divided by shares outstanding — profit per share
If a company earns $1 billion and has 100 million shares, each share 'earned' $10. Growing EPS over time is a main driver of stock price growth — but check whether it's coming from more profit or just fewer shares outstanding after buybacks, since both raise the number.
EPS divides net income available to common shareholders by weighted-average shares outstanding for the period. Basic EPS uses actual shares outstanding; diluted EPS also counts shares that could be created from stock options, convertible debt, and restricted stock units, so it's the more conservative, generally more meaningful figure. EPS has no universal 'good' level since it scales with share price and share count — a $200 stock and a $20 stock can represent identical underlying profitability with very different EPS. What matters is the trend and its source: EPS growth from rising net income differs from EPS growth driven mainly by buybacks shrinking the share count, and one-time items can distort a single quarter's figure.
Formula
EPS = Net Income ÷ Shares OutstandingRelated concepts
- P/E Ratio — Imagine buying a lemonade stand that makes $100/year. If it costs $2,000, the P/E is 20 — you need 20 years of earnings to pay it off. Lower means cheaper.
- Revenue Growth — If a company sold $100M last year and $120M this year, revenue grew 20%. Fast growth is exciting but check if it's profitable growth or just spending more to sell more.
- Net Margin — Net margin is what's left after EVERY expense — cost of goods, rent, salaries, interest on debt, and taxes. If a company brings in $100 of revenue and keeps $12 after all of that, its net margin is 12%. It's the strictest profitability measure, sitting below gross and operating margin since it also absorbs financing costs and one-time items.