EPS (Earnings Per Share)

Earnings per share is the portion of a company's profit attributable to each outstanding share of common stock. It is calculated by subtracting preferred dividends from net income and dividing by the weighted average number of common shares outstanding during the period. Preferred dividends are subtracted because earnings per share measures only what is available to common shareholders. A weighted average is used because the share count changes during the period as shares are issued or repurchased.

EPS is the single most-watched number every earnings season. A rising EPS means the company is becoming more profitable per share you own.

What this tells you

Net income divided by the number of shares outstanding — the company's profit expressed per share you own. It lets you compare a company against its own past, and roughly against companies of very different sizes.

What it does not tell you

But EPS can rise while the business shrinks. A company buying back its own stock reduces the denominator, so earnings per share go up even when total profit is flat or falling. It also carries one-time items — a single asset sale can make a poor quarter read as growth. And there is a structural catch almost nobody mentions: no US company files a fourth-quarter 10-Q. There are three quarterly filings a year, and Q4 is derived from the annual report minus the first three. That works for figures that add up. It does not work for per-share numbers, because EPS divides by a weighted average share count over the period — so subtracting one year-to-date figure from another does not give you a quarter. A fourth-quarter EPS computed that way is not a measurement.

Further reading: Wikipedia