Earnings Per Share (EPS): Definition and Calculation
EPS measures a company's profit allocated to each outstanding share. Use diluted EPS for a conservative view when calculating valuation ratios.
Exact Formula:
Diluted EPS accounts for convertible securities, options, and warrants.
Notes
- EPS (TTM) is commonly used for trailing valuation metrics
- Share count changes (buybacks/issuance) affect EPS comparability
- Quality of earnings matters - look beyond just the EPS number
Why This Matters:
EPS is the foundation for most valuation ratios like P/E. It represents the company's earning power on a per-share basis, making it easier to compare companies of different sizes and track progress over time.