How to Calculate Earnings Per Share (EPS)

Earnings per share (EPS) is one of the most widely used metrics in stock analysis. It tells investors how much profit a company generates for each outstanding share. Higher EPS generally signals stronger profitability and can drive stock price appreciation.

The Basic EPS Formula

EPS = (Net Income βˆ’ Preferred Dividends) / Weighted Average Common Shares Outstanding

Step-by-Step Example

Company financials:

  • Net income: $10 million
  • Preferred dividends: $500,000
  • Average shares outstanding: 4.75 million

EPS = ($10,000,000 βˆ’ $500,000) / 4,750,000 = $9,500,000 / 4,750,000 = $2.00 per share

Basic vs. Diluted EPS

  • Basic EPS: Uses actual shares outstanding
  • Diluted EPS: Assumes all convertible securities (options, warrants, convertible bonds) are exercised, increasing the share count. Diluted EPS is always ≀ Basic EPS and is considered the more conservative, important figure.

Diluted EPS formula:

Diluted EPS = (Net Income βˆ’ Preferred Dividends) / (Basic Shares + Dilutive Securities)

Using EPS in Valuation

The Price-to-Earnings (P/E) ratio, one of the most common valuation metrics, uses EPS:

P/E Ratio = Stock Price / EPS

If a stock trades at $40 and EPS is $2.00, its P/E ratio is 20Γ—β€”meaning investors pay $20 for every $1 of earnings.

EPS Growth

EPS growth is often more important than the absolute EPS level. A company growing EPS 20% per year is typically valued more highly than one with flat EPS at the same level.

Use our EPS calculator to evaluate any publicly traded company.