What is Earnings Per Share EPS? Meaning, Formula + Example

They have similar limitations, but both have historically been reliable metrics for comparing companies and stocks. Additionally, you can evaluate EPS based on how it compares to industry peers and its trends over time. Though EPS growth is relative to the broader market and economic conditions, investors generally want to see a company’s EPS eps definition grow year over year. A company that more consistently beats estimates could be considered a better stock option than a company that doesn’t. Nevertheless, keep in mind that these EPS bets are also relative, based on the market and economic conditions for corporate profits. If the earnings report exceeds estimates, a stock may jump in price.

For example, buybacks can affect EPS, as the number of outstanding shares is then reduced. This can appear to show EPS growth, even while earnings may be static or declining. Investment Plans (“Plans”) shown in our marketplace are for informational purposes only and are meant as helpful starting points as you discover, research and create a Plan that meets your specific investing needs.

1. A weighted average number is used instead of a year-end number because the number of common shares frequently changes throughout the year.
2. You should consult your legal, tax, or financial advisors before making any financial decisions.
3. Basic and diluted EPS calculations are both standardized across companies by the Generally Accepted Accounting Principles (GAAP).
4. This does mean that basic share count will change from period to period.
5. In this case, the company or analyst will add the interest paid on convertible debt back into the numerator of the EPS calculation so the result isn’t distorted.

Basic EPS includes all of the company’s outstanding shares, while diluted EPS includes shares, stock options, warrants, and restricted stock units. To calculate a company’s earnings per share, divide total earnings by the number of outstanding shares. The EPS figure is important because it is used by investors and analysts to assess company performance, to predict future earnings, and to estimate the value of the company’s shares. The higher the EPS, the more profitable the company is considered to be and the more profits are available for distribution to its shareholders. All investments involve the risk of loss and the past performance of a security or a financial product does not guarantee future results or returns. You should consult your legal, tax, or financial advisors before making any financial decisions.

How to calculate EPS

In those cases, you’ll want to use basic EPS for company-to-company comparisons. Basic and diluted EPS calculations are both standardized across companies by the Generally Accepted Accounting Principles (GAAP). For a full year, ABC Corporation generates $10 million in net income.

What are the types of EPS?

Banking services and bank accounts are offered by Jiko Bank, a division of Mid-Central National Bank.JSI and Jiko Bank are not affiliated with Public Holdings, Inc. (“Public”) or any of its subsidiaries. Comparing EPS ratios can be a helpful indicator when investing in stocks. When a company’s EPS shows continued growth over time, it can be a good sign that it’s able to maintain profitability. On the other hand, when you see dropping EPS numbers, it can be a sign the company’s losing money.

Impact of Basic Earnings Per Share

Market and economic views are subject to change without notice and may be untimely when presented here. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. Historical or hypothetical performance results are presented for illustrative purposes only. A common rule of thumb for dividend investing is to look for dividend stocks with payout ratios below 80% — stocks where dividends per share account for no more than 80% of EPS.

When reviewing a company’s income statement, knowing the difference between EPS and diluted EPS can help determine the calculation you’ll want to use to get the most accurate information. Basic EPS doesn’t account for additional stock options or warrants, which, if exercised, may increase the stock shares that are outstanding in the market. If it loses $10 million with 10 million shares outstanding, basic loss per share is $1.00 even. But the outstanding options — whether in the money or not — do not affect diluted share count. Again, they are anti-dilutive; if they were added to the diluted share count, loss per share would improve slightly, to $0.95. The diluted share count differs from the basic share count in that it adds shares that aren’t yet issued — but could be.

In that case, the options are excluded because they would increase the diluted share count — and thus actually decrease the loss per share. In that event, the higher diluted share count is making the business look better than it might otherwise be. The accounting rules applied to diluted shares aim to prevent that outcome.

Below is the calculation of Pfizer’s (PFE) EPS for the quarter that ended on July 3, 2022. Learning how stocks work doesn’t have to be complicated and stressful. Public has a variety of articles that can help you learn as you go.