What is Earnings Per Share (EPS)?
Earnings per share (EPS) is a profitability ratio that describes the ratio of a company’s net earnings to outstanding shares.
How to Calculate EPS
Earnings per share (EPS) is calculated by dividing net income minus preferred dividends by weighted-average common shares outstanding.
Net income is found on the income statement, preferred dividends on the cash flow statement, and weighted-average common shares outstanding usually on a consolidated statement of operations, or the balance sheet in the equity section.
How to Interpret EPS
In general, investors want to see increasing earnings per share over time.
However, earnings can be deceiving, and the quality of earnings needs to be assessed before putting too much weight on both net income and earnings per share.
A more reliable measure of profitability is free cash flow, and free cash flow per share.