Earnings per Share (EPS)

Financial Dictionary -> Investing -> Earnings per Share (EPS)

Earnings per Share (abbreviated to EPS) is the amount of profit put aside by a company for each outstanding share of common stock. It is simply a ratio that measures a company's earnings (profit after tax) divided by the number of ordinary shares. This can be used to measure a company's profit performance over time. It also shows the potential for paying out dividends to shareholders.

Earnings per share can be easily calculated with the following formula:

Earnings per Share = net profit after tax / number of ordinary shares.

Earnings per share is relatively meaningless if analyzed on its own, although the higher the result the better for shareholders themselves. Meaning can only be established by comparing the previous year's results, to see how the company has developed.

What is often ignored when using the earnings per share ratio is the amount of initial investment needed to pull in the net income listed in the calculation. For example several businesses might end up with the same earnings per share amount, but company A might reach the number using less initial funds than the other companies. This suggests that company A is a more efficient business and therefore more stable and safer to invest in.

There are several types of EPS number used in analysis. These include:

Trailing EPS - which is the previous year's number and is often compared with the current EPS
Current EPS - is this year's number.
Forward EPS - is a forecast of what the number might be in the future.