EPS (Earnings Per Share)
Net income divided by shares outstanding. EPS is the single most-watched earnings metric for valuing a stock.
Formula
EPS = Net Income ÷ Weighted Average Shares Outstanding
Earnings per share (EPS) tells you how much profit the company generated for each outstanding share. It is the building block for the P/E ratio and the yardstick Wall Street analysts use to set price targets.
There are two flavors: basic EPS uses shares outstanding as-is; diluted EPS also counts all convertible instruments — options, warrants, convertible bonds — that could become shares. Diluted EPS is the more conservative and widely cited figure.
Analysts publish consensus EPS estimates before each quarter. Whether the company beats, meets, or misses that consensus is often the dominant driver of the stock's reaction on earnings day, regardless of the absolute EPS level.
Example
A company earns $500 million net income with 250 million diluted shares outstanding. Diluted EPS = $500M ÷ 250M = $2.00. If the consensus estimate was $1.85, the company beat by $0.15 — a 8% beat that typically triggers a gap-up.
Related Terms
Book Value
Total assets minus total liabilities on the balance sheet — what shareholders would theoretically receive if the company were liquidated today.
IntermediateDividend Payout Ratio
The share of earnings paid out as dividends. A low ratio leaves room to grow the dividend; a very high one signals fragility.
IntermediateEarnings Beat
When a company reports EPS or revenue above the analyst consensus estimate. Often triggers a stock price increase.
BeginnerEarnings Miss
When a company reports EPS or revenue below the analyst consensus estimate. Typically triggers a sharp stock decline.
BeginnerEarnings Report
A company's official quarterly disclosure of revenue, earnings, margins, and guidance. The biggest recurring event in single-stock trading.
BeginnerForward Guidance
Management's public forecast for future revenue, earnings, or margins. Often moves the stock more than the reported quarter itself.
IntermediateFree Cash Flow
Operating cash flow minus capital expenditures. The actual cash a business generates after maintaining and growing its assets.
IntermediateP/E Ratio
Share price divided by earnings per share. The P/E tells you how many dollars investors pay for each dollar of earnings.
BeginnerPEG Ratio
P/E ratio divided by the expected annual EPS growth rate. Adjusts valuation for growth — a PEG near 1.0 is often seen as fair value.
IntermediateReturn on Equity (ROE)
Net income as a percentage of shareholders' equity. Measures how efficiently a company turns shareholder capital into profit.
IntermediateRevenue
The total income a company generates from its business activities before any costs are deducted. The "top line" of the income statement.
BeginnerShare Buyback
When a company uses its cash to purchase its own shares on the open market, reducing shares outstanding and boosting EPS.
Intermediate