What's the EPS of a Company?

EPS: TL;DR

Earnings per share (EPS) refers to the portion of a company's profit allocated to each outstanding share of common stock. It is calculated by dividing yearly net income by the number of outstanding shares. EPS is a key indicator of a company's profitability.

EPS = Net Income / Average Outstanding Shares

In-Depth Understanding

EPS is more than just a simple division of net income and outstanding shares. It provides insight into the profitability of a company on a per-share basis, helping investors to understand how much profit a company is making for its shareholders.

There are a few variations of EPS that investors often look at, including basic EPS and diluted EPS. Basic EPS doesn't account for potential share dilution—additional shares that could be created by stock options, convertible securities, and other sources. Diluted EPS, on the other hand, factors in potential dilution to give a 'worst-case' scenario for the EPS.

While EPS can be a useful measure, it shouldn't be used in isolation. It's also important to consider other financial metrics and the company's overall financial health.

Real-world Examples

An E-commerce Company - Amazon Inc.

For Amazon, EPS is calculated by dividing its net income by its average number of outstanding shares. The resulting figure represents the profit attributable to each share of the company's common stock.

A Consumer Electronics Company - Apple Inc.

Apple's EPS is derived by dividing the company's net income by its average number of outstanding shares. This figure gives an idea of the amount of Apple's profit that can be allocated to one share of its stock.

An Automobile Company - Tesla Inc.

For Tesla, the EPS is calculated by dividing the net income of the company by its average number of outstanding shares. This gives investors a sense of the profit Tesla generates per share of its common stock.