Earnings per share (EPS) is the profit attributable to shareholders (after interest, tax, minority interests and everything else) divided by the number of shares in issue. It is the amount of a company's profits that belong to a single ordinary share.

Companies are required to publish the statutory (also called “basic”) EPS but there are a number of adjusted EPS numbers that are more useful to investors.

The most common alternative EPS numbers used are adjusted or headline EPS and diluted EPS.

Uses of EPS

The most common use of EPS is to calculate the PE ratio, which puts EPS into context by comparing it to the share price. There are a number of variants of the PE ratio, using past earnings, forecast earnings, or the average over many years.

Trends in EPS are also an important measure of growth EPS growth is combined with PE in the PEG ratio. It is also used to screen for growth companies. EPS growth is a key measure of management performance as shows how much money the company is making for shareholders, not only because of changes in profits, but also after all the effects of new share issues (this is particularly important when growth is acquisitive).

Copyright © 2005-2016