Glossary
Earnings Per Share (EPS)
Net income available to common shareholders divided by the weighted average number of shares outstanding.
Earnings per share takes a company's profit and divides it by the number of shares, so you can see how much of the profit belongs to each share you own. It is the figure most headlines quote on earnings day, the one compared with the Consensus Estimate, and the "E" in the Price-to-earnings ratio (P/E).
Worked example
The share count is a weighted average because shares are issued and bought back during the year. Diluted EPS assumes that in-the-money options, warrants and convertibles turn into shares, which gives a more conservative figure; it is the version analysts usually use.
Versions you will see
- GAAP EPS, from reported net income.
- Adjusted EPS, which excludes items management treats as unusual. It is often higher and is the basis for most Wall Street estimates.
- Trailing twelve months (TTM), the sum of the last four quarters.
- Forward EPS, a forecast for the next year, used in the Forward P/E.
What it does not tell you
EPS can rise without the business improving. A company that buys back 5% of its shares each year lifts EPS by about 5% even if total profit is flat. One-time gains and tax changes also swing it. And EPS says nothing about cash: compare it with free cash flow per share over several years to see whether the reported profits are real.