Earnings Per Share Formula (EPS)

Net income divided by shares outstanding

What is Earnings Per Share (EPS)?

EPS is a financial ratio, which divides net earnings by the total outstanding shares outstanding over a fixed period of time. A higher ratio indicates a company’s sound ability to produce valid returns. This guide breaks down the Earnings per Share formula in detail.

A single EPS value for one company is somewhat arbitrary, but the ratio is more valuable when analyzed against other companies in the industry. Between two companies of the same business and similar size, a higher EPS indicates better profitability. EPS may often be utilized in conjunction with the price-to-book ratio.

 

earnings per share formula

 

Earnings per Share Formula

There are several ways to calculate earnings per share.

Below are two versions of the earnings per share formula:

EPS = (Net Income – Preferred Dividends) / Shares Outstanding

EPS = (Net Income – Preferred Dividends) / Weighted Average Shares Outstanding

 

The first formula uses total outstanding shares to calculate EPS, but in practice, analysts may use the weighted average when calculating the denominator. Since outstanding shares can change over time, analysts often use last period shares outstanding.

There is also often talk of diluted EPS in financial reports. Diluted EPS includes options, convertible securities and warrants outstanding that can possibly affect total shares outstanding when exercised.

Another type of earnings per share is adjusted EPS. This removes all non-core profits and losses, such as those in minority interests. The focus of this calculation is to see only profit or loss generated from core operations.

 

EPS formula Example

CFI Ltd has a net income of $1 million in the third quarter. The company announces preferred dividends of $250,000. Total shares issued for the period was 12,000,000, with total shares outstanding at 11,000,000.

The EPS of CFI Ltd. would be:

EPS = ($1,000,000 – $250,000) / 11,000,000
EPS = $0.068

If every share were to receive an equal slice of the pie of net incomes, they would each receive $0.068.

 

Additional resources

This has been a guide to the earnings per share formula.  To learn more about other forms of financial analysis and to advance your career, explore these additional resources below: