Short definition: Earnings per share (EPS) is a financial ratio that indicates the portion of a company’s profit allocated to each outstanding share of common stock.
Explanation: EPS is a key metric for evaluating a company’s profitability and is often used by investors to compare the performance of different companies. It is calculated by dividing a company’s net income (after preferred dividends, if any) by the average number of outstanding common shares during a specific period.
Example: If a company has a net income of $1 million and 1 million outstanding shares of common stock, its EPS would be $1.
Additional information (optional): EPS can be reported in two ways: basic EPS and diluted EPS. Basic EPS considers only the outstanding common shares, while diluted EPS takes into account the potential dilution from convertible securities, such as stock options and convertible 1 bonds.