Earnings per share definition

Used to calculate the value of each publicly traded share in a company relative to the company’s earnings. Investors can use EPS to show how profitable a company is on a share-by-share basis.

What is earnings per share (EPS)?

EPS is a way of calculating the value of each publicly traded share in a company relative to its earnings. The amount of profit made by a company and the number of shares they each have listed to the public can vary, so EPS gives you a way of evaluating each business individually.

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How is earnings per share calculated?

Earnings per share is calculated by dividing a company’s net profit by the number of shares it has in circulation. 

You don’t have to worry about doing this yourself though – tools like Google Finance can tell you automatically. Just type in the name of the company you want the information about, followed by ‘earnings per share’.

 

Why is earnings per share useful?

Earnings per share is useful because it helps investors assess the potential profitability of their investment in a company. As a result, earnings per share can help investors make informed decisions about whether they want to invest in a company over the long term.

A higher earnings per share means that a company is seen as being more profitable, or more capable of turning a profit compared to its competitors.

 

Earnings per share vs diluted earnings per share

You might encounter two different versions of EPS. The first regular EPS, which takes into account a company’s common shares. The second is diluted EPS, which takes into accounting all convertible company securities including company bonds or preferred stock. 

 

H2What is earnings per share (EPS)?
OverviewEPS is a way of calculating the value of each publicly traded share in a company relative to its earnings. The amount of profit made by a company and the number of shares they each have listed to the public can vary, so EPS gives you a way of evaluating each business individually.

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Investing glossary

It's important you know

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest.

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