Intermediate3 min readFundamental Analysis and Financial Statements · 8/15
Earnings per Share (EPS): How Is It Calculated?
Net profit tells you what the whole company earned. But you do not own the whole company; you own shares. Earnings per share divides profit by the number of shares, so you see each share's portion.
What you will learn
Compute EPS from net profit and the share count.
See why net profit can rise while EPS falls.
Know which well-known ratio EPS feeds into.
The lesson as a short video · 20 seconds · Watch on YouTubeIn this lesson
In simple terms, if the share count is constant and there are no non-controlling interests: EPS = net profit ÷ number of shares. The general formula uses the profit attributable to the parent company's ordinary shareholders ÷ the weighted average number of shares. The invented company Al Wadi Foods earned EGP 93 million and has 100 million shares. So EPS is 93 ÷ 100 = 0.93 pounds: each share's portion of the year's profit is 0.93.
A share's portion of profit does not mean that money lands in your account. The company may pay out part of it, or keep all of it and reinvest it. Dividends are a separate subject.
Weighted average share countIf the share count changed during the year, the statements use an average that counts each level for the time it lasted, not the last day's count.
Attributable to the parentIn consolidated statements, part of profit may belong to minority partners in subsidiaries. EPS uses only the profit attributable to the parent's shareholders.
Profit up, EPS down?
ExampleLast year the company earned 80 million on 80 million shares, an EPS of 1.00. This year it raised capital at the start of the year, so the weighted average share count was 100 million, and it earned 93 million. Profit rose 16.25%, but EPS fell to 0.93, down 7%. Profit grew, but it was split across more shares.
Last year
Net profit80M
Weighted avg. shares80M
EPS 1.00
This year
Net profit93M ▲
Weighted avg. shares100M ▲
EPS 0.93 ▼
Profit rose, the share count rose faster, so EPS fell.
Watch outDo not compare EPS between two companies as a ranking. One with EPS of EGP 5 and another with 0.50 can be equally profitable; the difference may lie entirely in share count and share price. EPS is more useful for following the same company year after year.
Where EPS is used
Its best-known use is the P/E ratio: share price ÷ EPS. With a price of 9.30 and EPS of 0.93, P/E is 10. The P/E ratio lesson covers it and when it misleads. Negative EPS means a loss, and P/E is then not meaningful.
See a real EPS
Open any stock page; under "Stock data" you will find EPS and net profit when the data is available.