Earnings Per Share

Indicates the portion of a company's profit allocated to each share.

Earnings Per Share

Indicates the portion of a company's profit allocated to each share.

Earnings Per Share

Indicates the portion of a company's profit allocated to each share.

Formula

Earnings Per Share = (Net Income - Dividends) / Average Shares

Know your metric

Importance of

Earnings Per Share

  1. Key Profitability Measure

EPS is a widely used indicator of a company's profitability, distilled down to a per-share basis, making it easy for investors to use in valuations.


  1. Comparability

It enhances comparability among companies, especially when assessing potential investments on a per-share basis.


  1. Influence on Stock Price

EPS is a major determinant of a company’s share price and often influences investor sentiment and market movements.

Drawbacks of

Earnings Per Share

  1. Manipulation Risk

Companies can manipulate EPS through strategies like share buybacks, which reduce the number of outstanding shares without necessarily improving operational performance.


  1. Does Not Account for Capital Structure

EPS does not reflect the company’s capital structure, as it does not account for the costs of debt, which can affect a company’s risk profile and financial health.


  1. Volatile

EPS can be highly volatile from quarter to quarter, influenced by non-operational factors like tax changes, accounting adjustments, or one-time gains and losses.

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