Earnings Per Share (EPS) is another term commonly heard relating to the stock market, and this is because it is a fundamental element for understanding the value of a stock. Put simply, EPS is a figure that helps determine the amount of profit a company is generating and is typically reported on a quarterly or annual basis. EPS is included in the income statement and gives investors insight into the exact earnings generated by one share. There are a couple of different ways to calculate EPS, and these include:
These formulas above are only helpful for identifying the basic EPS, but some investors decide to pay close attention to the reported Diluted Earnings Per Share (diluted EPS). This is helpful for getting a clearer picture of a company’s profitability due to the fact that basic EPS only focuses on common shares.
EPS is just another crucial factor for recognizing the value of a stock and is helpful in identifying whether an investment is worth it. It can help investors know whether a stock is over- or undervalued, and offers yet another piece of the stock market puzzle.