earnings per share

Example

“The company reported earnings per share of $3.50, beating analyst expectations of $3.20.”

Memory Tip

EPS = EARNINGS divided by each SHARE. What does each share of stock earn for you?

Why It Matters

Earnings per share helps you understand how much profit a company generates for each share you own. If you are considering investing in a stock, a higher EPS can indicate the company is more profitable and may provide better returns on your investment.

Common Misconception

Many people think that a higher EPS always means a better investment opportunity. However, EPS can be artificially inflated if a company reduces its share count through buybacks without actually improving profitability, so you should compare EPS to other metrics.

In Practice

If Company ABC reports annual net profit of 100 million dollars and has 50 million outstanding shares, the EPS would be 2 dollars per share. If the same company increases its net profit to 120 million dollars the next year while maintaining 50 million shares, the new EPS becomes 2.40 dollars, showing improved profitability per share.

Etymology

Earnings (profit) + per (for each) + share — how much profit each share represents.

Common Misspellings

Related Terms

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