What is EPS(Earnings Per Share)?

Earnings per share or EPS is an important financial measure, which indicates the profitability of a company. It is just one of many tools investors to analyze the health of a business and estimate its overall value.

The higher the EPS, the higher the profitability nonetheless EPS should not be looked at in isolation. EPS of a company should always be considered in relation to other companies in order to make a more informed and prudent investment decision.

It is calculated by dividing the company’s net income with its total number of outstanding shares. It is a tool that market participants use frequently to gauge the profitability of a company before buying its shares.

Earnings per share can be calculated in two ways:

Earnings per share: Net Income after Tax/Total Number of Outstanding Shares.

Weighted earnings per share: (Net Income after Tax - Total Dividends)/Total Number of Outstanding Shares.

A more diluted version of the ratio also includes convertible shares as well as warrants under outstanding shares. It is considered to be a more expanded version of the basic earnings per share ratio.