What is Earnings Per Share?

Earnings Per Share (EPS) is a metric or financial ratio that indicates how much profit the company makes for a single issued share.

Basic Earnings Per Share (EPS)

EPS is computed by dividing the net profit by the number of outstanding shares. Because net profit is reported quarterly, half-yearly, or annually, EPS may be calculated for each of these periods.

$$ \text{Basic EPS}=\frac{\text{Net Profit}}{\text{Outstanding Shares}} $$

Diluted Earnings Per Share (Diluted EPS)

A company might offer convertible shares (instruments that may convert to equity in the future). Convertible shares are taken into account while calculating Diluted EPS.

$$ \text{Diluted EPS}=\frac{\text{Net Profit}}{\text{Outstanding Shares} + \text{Convertible Shares}} $$

Also, it is notable that Diluted EPS will always be less or equal to Basic EPS.

Diluted EPSBasic EPS

Trailing Twelve Months Earnings Per Share (TTM EPS)

TTM EPS is computed using net earnings and outstanding shares from the previous twelve months or four quarters, as the name suggests.

TTM EPS=EPS1+EPS2+EPS3+EPS4

Where

  • EPS1 stands for earnings per share of last quarter.
  • EPS2 stands for earnings per share of the second last quarter.
  • EPS3 stands for earnings per share of the third last quarter.
  • EPS4 stands for earnings per share of the fourth quarter.

Significance of EPS

Earnings per share (EPS) is a metric that indicates whether or not a company is worth investing in. EPS is frequently compared to previous EPS numbers to determine the company's trajectory. Increasing EPS means the company is progressing, whereas dropping EPS means the company is regressing.

Comparing EPS

  • If you're looking for EPS quarterly, comparing it to the prior year's same quarter is more relevant than the previous quarter. For example, you should compare EPS of July-September 2020 with EPS of July-September 2019.
  • If you're looking at EPS half-yearly, compare it to the same half-year period last year.
  • If you're looking at the EPS yearly, compare it to the previous year/s

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