Earnings Per Share (EPS)

Earnings Per Share (EPS) is a financial metric that measures a company's profitability by allocating its net income to each outstanding share of common stock. It is one of the most widely used financial KPIs for investors and analysts to assess a company's financial health and valuation, as it shows how much money the company makes for each share of its stock.

The calculation is straightforward: a company's net income (less any preferred stock dividends) is divided by the weighted average number of common shares outstanding during a period. Companies often report two types of EPS: basic and diluted. Diluted EPS provides a more conservative measure by including the impact of all potential dilutive securities, such as stock options and convertible bonds, on the total number of shares.

EPS is a critical input for many valuation ratios, most notably the price-to-earnings (P/E) ratio, and is often compared to other profitability metrics like Return on Equity (ROE). A consistent or growing EPS is generally viewed as a positive sign of a company's performance and operational efficiency.