Earnings Per Share (EPS) Calculator

Calculate basic and diluted earnings per share - key metrics for evaluating stock value and company profitability.

Calculate EPS

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Results

Basic EPS

$1.80

Earnings per common share

Diluted EPS

$1.58

Earnings per share including potential dilution

Interpretation

Your basic EPS of $1.80 indicates the company's profitability allocated to each outstanding share of common stock. The diluted EPS of $1.58 shows the potential impact if all convertible securities and stock options were exercised.

Understanding Earnings Per Share (EPS)

Earnings Per Share (EPS) is a financial ratio that measures the amount of net income earned for each outstanding share of a company's common stock. It's one of the most widely used metrics for evaluating a company's profitability and is a key component in calculating the price-to-earnings (P/E) ratio.

Types of EPS

There are two main types of EPS calculations:

  • Basic EPS: Measures earnings available to common shareholders divided by the weighted average number of common shares outstanding during the period.
  • Diluted EPS: Adjusts the basic EPS calculation to account for the potential dilution that would occur if convertible securities (like stock options, warrants, and convertible debt) were exercised or converted into common stock.

How to Calculate EPS

Basic EPS Formula:

Basic EPS = (Net Income - Preferred Dividends) ÷ Weighted Average Common Shares Outstanding

Diluted EPS Formula:

Diluted EPS = (Net Income - Preferred Dividends) ÷ (Weighted Average Common Shares Outstanding + Potential Common Shares from Convertible Securities)

Diluted EPS is always lower than or equal to basic EPS because it assumes that convertible securities have been converted, increasing the total number of outstanding shares.

Why EPS Matters

EPS is a crucial metric for investors and analysts for several reasons:

  • Profitability indicator: EPS provides a clear measure of a company's profitability on a per-share basis, making it easier to compare companies of different sizes.
  • Valuation tool: EPS is used in calculating the price-to-earnings (P/E) ratio, one of the most common valuation metrics.
  • Growth assessment: Changes in EPS over time help investors assess a company's growth trajectory.
  • Dividend potential: Higher EPS often indicates greater potential for dividend payments or increases.
  • Management performance: EPS is frequently used as a benchmark for executive compensation and performance evaluation.

EPS Growth

EPS growth is the percentage increase in a company's EPS over a period, typically year-over-year or quarter-over-quarter. Consistent EPS growth is generally viewed positively by investors as it indicates improving profitability.

EPS Growth = (Current Period EPS - Previous Period EPS) ÷ Previous Period EPS × 100%

Limitations of EPS

While EPS is a valuable metric, it has several limitations that investors should be aware of:

  • Accounting manipulations: Companies can use various accounting techniques to boost EPS artificially.
  • Share buybacks: Companies can increase EPS by reducing the number of outstanding shares through buybacks, even if net income remains unchanged.
  • One-time events: Extraordinary gains or losses can significantly impact EPS without reflecting the company's ongoing operational performance.
  • No cash flow consideration: EPS doesn't account for a company's cash flow situation, which is crucial for long-term sustainability.
  • Industry differences: EPS values vary widely across industries, making cross-industry comparisons less meaningful.

Due to these limitations, investors typically use EPS alongside other financial metrics for a more comprehensive analysis.

Frequently Asked Questions

What's a good EPS?

There's no universal benchmark for a "good" EPS as it varies significantly by industry, company size, and growth stage. Rather than focusing on the absolute value, investors should consider EPS growth over time and how it compares to industry peers. Additionally, the price-to-earnings (P/E) ratio provides context by relating EPS to the company's stock price.

Why is diluted EPS important?

Diluted EPS provides a more conservative and realistic view of a company's earnings by accounting for potential dilution from convertible securities. It shows the "worst-case scenario" for earnings per share if all convertible securities were exercised. This is particularly important for companies with significant outstanding stock options, convertible debt, or warrants.

How does EPS affect stock price?

EPS doesn't directly determine stock price, but it significantly influences investor sentiment and valuation. Higher EPS generally indicates stronger profitability, which can lead to increased investor confidence and higher stock prices. However, stock prices also reflect future expectations, so a company with lower current EPS but strong growth prospects might have a higher stock price than a company with higher current EPS but limited growth potential.

What's the difference between EPS and adjusted EPS?

Adjusted EPS (sometimes called "non-GAAP EPS") excludes one-time or non-recurring items that might distort the company's underlying operational performance. These adjustments might include restructuring costs, asset impairments, gains/losses from asset sales, or litigation expenses. While adjusted EPS can provide a clearer picture of ongoing business performance, it's important to understand what items are being excluded and why.