Earnings Per Share (EPS)
Quick Answer
A company's profit divided by the number of outstanding shares, showing profitability per share.
Understanding EPS
EPS is one of the most important metrics for evaluating a company's profitability. It tells you how much profit is attributable to each share of stock.
Basic Formula: EPS = (Net Income - Preferred Dividends) / Average Outstanding Shares
Why It Matters: Higher EPS indicates greater profitability. Investors often compare a company's EPS to previous quarters and to competitors.
Types of EPS
Basic EPS Uses the current number of outstanding shares.
Diluted EPS Includes the potential impact of convertible securities, stock options, and warrants. This is more conservative and often preferred by analysts.
Forward EPS Analyst estimates of future earnings per share, used for valuation metrics like forward P/E ratio.
EPS and Market Reactions
Earnings Beats When a company reports EPS higher than analyst expectations, the stock often rises.
Earnings Misses When EPS falls short of expectations, the stock typically drops.
The Whisper Number Sometimes the true market expectation differs from published estimates. Beating estimates but missing the whisper number can still cause a decline.