Finveda Blog
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 profitability. It is often considered to be one of the most important variables in determining a stock’s value, and it comprises the “E” part of the P/E (price-earnings) valuation ratio. EPS is calculated as:
EPS = Net income / Average Outstanding Common Shares
Note: Some companies have a special class of stock called Preferred Stock. Any dividends paid on preferred stock would be subtracted from net income when calculating EPS. The formula for calculating EPS would then be:
EPS = (Net Income – Dividends on Preferred Stock) / Average Outstanding Common Shares
