Financial metric · Per share and valuation
Earnings per Share (EPS)
A company's net income for the year divided by its shares outstanding. It is the basis of the P/E ratio and the number most earnings headlines quote.
How to calculate it
Basic EPS = (net income − preferred dividends) ÷ weighted-average common shares outstandingDiluted EPS adds shares that could be issued from options, restricted stock units and convertible securities (using the treasury stock method and if-converted method under ASC 260)How to read it
- The level of EPS is not comparable across companies, because it depends on how many shares a company has. What matters is its growth and the P/E it implies.
- If net income grows but EPS does not, the share count is growing through stock issuance or employee equity, diluting existing owners.
- Use diluted EPS. For companies with large employee equity programs, the gap between basic and diluted shares can be meaningful.
Common pitfalls
- Buybacks raise EPS without raising total profit. EPS growth from a shrinking share count is real for remaining shareholders, but it is not business growth.
- Stock splits change EPS mechanically; historical comparisons need split-adjusted figures.
- Headline 'EPS beats' usually refer to adjusted (non-GAAP) EPS. GAAP diluted EPS on the income statement can be quite different.
- EPS includes one-time items. Check whether the year contained gains or charges that will not repeat.
Where to find it in a 10-K
U.S. public companies must present basic and diluted EPS on the face of the income statement. The EPS note reconciles the share counts and lists securities excluded as anti-dilutive.
U.S. vs. China reporting
Both markets require basic and diluted EPS. A-share reports also disclose EPS based on recurring profit (after deducting non-recurring items). U.S. companies typically have much larger stock-based compensation programs, so dilution is a bigger issue in the U.S.