EPS stands for earnings per share, which is a company’s net income divided by the number of common shares outstanding. It is a key metric used to measure a company’s profitability and to compare different companies’ performance.

Formula:

EPS = Net Income / Number of Common Shares Outstanding

Key factors affecting EPS:

• Company’s profitability: Companies with higher profitability will have higher EPS.
• Number of common shares outstanding: Companies with a larger number of shares will have lower EPS.
• Dividends: Companies that pay dividends will reduce their EPS by the amount of the dividend paid per share.
• Accounting methods: Different accounting methods can affect EPS. For example, depreciation methods can affect earnings per share.
• Industry norms: Different industries have different average EPS levels.

Uses of EPS:

• Company comparison: Investors compare EPS of different companies to assess their relative performance.
• Stock valuation: EPS is used as a factor in determining the price of a company’s stock.
• Forecasting: Investors use EPS projections to forecast future company performance.

Important notes:

• EPS is a non-cash flow metric, so it does not include changes in working capital or long-term investments.
• EPS can be adjusted for certain items, such as extraordinary items or non-operating income.
• It is important to compare EPS figures for companies in the same industry or with similar business models.

Additional metrics:

• Diluted EPS: This is EPS adjusted for the dilutive effect of convertible securities.
• Adjusted EPS: This is EPS excluding certain items, such as extraordinary items or non-operating income.
• EPS growth: This is the percentage change in EPS between two periods.