EPS
Definition
Earnings Per Share — net income divided by shares outstanding.
Earnings Per Share (EPS) is a key metric in fundamental analysis, representing a company's profit divided by the number of outstanding shares. It provides a snapshot of a company's profitability on a per-share basis, helping investors evaluate its performance and compare it with other companies or its own historical data.
How It Works
EPS is calculated by dividing the company's net income by the number of outstanding shares. The formula is:
EPS = Net Income / Outstanding Shares
For example, if a company has a net income of $100,000 and 10,000 outstanding shares, its EPS would be $10.
Why It Matters
EPS is crucial for investors as it helps them understand the intrinsic value of a company's shares. Here's why it matters:
- Profitability Assessment: EPS helps investors determine if a company is making a profit or loss.
- Comparability: It allows investors to compare the profitability of different companies, even if they have a different number of outstanding shares.
- Growth Analysis: By tracking EPS over time, investors can see if a company's profitability is increasing, decreasing, or staying the same.
- PE Ratio Calculation: EPS is a key component in calculating the Price-to-Earnings (P/E) ratio, another important fundamental metric.