What Is The Formula For Calculating Earnings Per Share?

A:
What Is Earnings Per Share
Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, serving as an indicator of the company’s financial health. In other words, earnings per share is the portion of a company's net income that would be earned per share if all the profits were paid out to its shareholders. EPS is used typically by analysts and traders to establish the financial strength of a company.

How Earnings Per Share Is Interpreted By Investors
A higher EPS means that a company is profitable enough to payout more money to its shareholders. For example, a company might increase its dividend as earnings increase over time.
Investors typically compare the EPS of two companies within the same industry to get a sense of how the company is performing relative to its peers.
Establishing trends in EPS growth gives a better idea of how profitable a company has been in the past and may be in the future. A company with a steadily increasing EPS is considered to be a more reliable investment than one whose EPS is on the decline or varies substantially.
EPS is also an important variable in determining a stock’s value since it provides the “E” or earnings portion of the P/E (price-earnings) valuation ratio. The price-to-earnings ratio is one of the most common ratios utilized by investors in determining whether a company's stock price is valued properly relative to its earnings.
It's important to note that some companies reinvest their profits to grow the business, for example, technology companies. However, investors still look to EPS as a gauge of a company's profitability.
How To Calculate Earnings Per Share

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