What is Earnings Per share
Earnings per Share (EPS) is the ratio of a company’s net profit to the number of its outstanding shares. The calculation is used to determine company strength relative to other companies as well as to track performance.
When comparing one company to others, a higher EPS is considered the mark of a stronger business. When contrasting current company performance to its earlier performance, increasing EPS values indicate growing profitability.
A company’s EPS is one of the most important tools used to evaluate the business and make investment decisions. Investors and analysts carefully analyze EPS reports--typically quarterly and yearly--to gauge a company’s performance relative to expected earnings.
If the actual EPS report is significantly different than market expectations, the stock price can change rapidly and dramatically in either direction. EPS is one of the key pillars used for determining the value of a stock because it indicates profitability, growth and relative performance.
Calculating EPS and Diluted EPS
The Basic EPS formula is:
Earnings Per Share = (Net Income - Dividends on Preferred Stock) / Number of Shares Outstanding
The calculation above can be modified to include other components of possible company ownership, like stock options, warrants, etc., to determine the diluted EPS.
Diluted EPS is a measurement of the lowest possible EPS if all convertible securities became outstanding shares. The diluted EPS is always lower than the basic EPS and many analysts prefer the diluted EPS because it reveals how adulterated a stock’s strength could become.
EPS Caveats and Usage
Although EPS is one of the most commonly used metrics for evaluating a company and its stock, it can be misleading if the company has been buying back its own stock, which reduces the shares outstanding and pumps up the EPS. A company’s debt is also not a component of the EPS calculation, nor are capital expenditures required to achieve the EPS results.
If company ABC is able to achieve the same EPS as company XYZ without spending as much money and taking on as much debt, the stock of company ABC should be more valuable.
Finding EPS information on Investing.com
Investing.com includes the EPS calculation on the homepage of every stock, e.g. Apple (NASDAQ:AAPL). More detailed information can be found on the Financials>>Ratios page under the Per Share Data section. The Growth section, which is lower on the page, also shows EPS data relative to the company’s past performance.
The Stock Screener , located under the Tools tab, which can be used to filter for stocks that meet specific characteristics selected by the user, includes EPS-related choices which can be found via the ‘Add Criteria’ box, then clicking on the ‘Ratios’ link.
The results are collected beneath the screener, sorted into clickable tabs and columns. As well, the results are downloadable and/or can be added to your watchlist.