EPS stands for earnings per share. Earnings per share is considered to be the most important variable in determining a share’s price. It is also a major component used in valuation calculations and specifically the price to earnings ratio.
Earnings per share serves as an indicator of a company’s profitability.
The formula for calculating EPS is:
EPS = (Net Income – Dividends on Preferred Stock) / Outstanding Shares
Example: If a company earning $4 million in one year had 4 million common shares of stock outstanding, its EPS would be $1 per share.
Analysts and companies will release a forecasted EPS or an EPS estimate for a future quarter or year. When a company reports earnings, if they beat estimates, a stock will often rise. If they miss estimates, a stock will often fall.<< Back to Glossary Index