Earnings per share. A company's net income divided by the number of outstanding shares of its stock.

EPS, or Earnings Per Share, is a financial metric that measures the profitability of a company on a per-share basis. It indicates the portion of a company's earnings that can be attributed to each outstanding share of common stock. EPS is a widely used measure to assess a company's profitability, financial performance, and to estimate the value of its shares in the stock market. EPS is calculated using the following formula: EPS = (Net Income - Preferred Dividends) / Weighted Average Number of Common Shares Outstanding Let's break down the components of EPS: Net Income: Net income represents the profit earned by a company after deducting all expenses, taxes, interest, and other costs from its total revenue. It is a key measure of a company's profitability and financial performance. Preferred Dividends: Preferred dividends are the dividends paid to preferred shareholders, if applicable. These shareholders have a higher claim on the company's earnings compared to common shareholders. Weighted Average Number of Common Shares Outstanding: This figure represents the average number of common shares outstanding during a specific period, considering any changes in the number of shares due to stock issuances, buybacks, or other events that impact the share count. EPS is an important metric for several reasons: Profitability Assessment: EPS provides a measure of a company's profitability on a per-share basis. It allows investors and analysts to evaluate how effectively a company is generating earnings for its shareholders. Higher EPS indicates greater profitability, while lower EPS may indicate lower profitability. Financial Performance Evaluation: EPS is a key indicator of a company's financial performance over time. By comparing EPS across multiple periods, trends in profitability and earnings growth can be identified. It helps investors and analysts assess the company's ability to generate consistent and increasing profits. Investment Decision-Making: EPS is widely used by investors to evaluate the attractiveness of a company's shares. It is often used in valuation models, such as the price-to-earnings (P/E) ratio, to estimate the fair value of a company's stock. Higher EPS typically correlates with higher stock prices, suggesting greater potential for investment returns. Comparability: EPS allows for comparisons between companies within the same industry or across different industries. It provides a standardized measure of profitability that can be used to evaluate companies of varying sizes and financial structures. It is important to note that EPS has some limitations: Quality of Earnings: EPS is based on reported net income, which can be influenced by accounting choices and non-recurring items. Therefore, it's essential to consider the quality and sustainability of a company's earnings before making investment decisions solely based on EPS. Dilution: EPS can be impacted by changes in the number of shares outstanding. Events such as stock issuances or stock options exercised by employees can dilute the EPS. Dilution should be considered when comparing EPS across different periods or companies. Contextual Factors: EPS should be analyzed in the context of the industry, company size, and other relevant factors. Different industries may have different profit margins and growth rates, making direct EPS comparisons less meaningful. In conclusion, EPS is a key financial metric that measures a company's profitability on a per-share basis. It provides insights into a company's earnings generation, financial performance, and is widely used for investment analysis. However, it should be evaluated alongside other financial measures, accounting for the quality of earnings and considering the specific characteristics of the company and industry to obtain a comprehensive understanding of a company's financial health.