Understanding Earnings Per Share (EPS)

Earnings per share (EPS) divides net income by the number of shares outstanding, giving a per-share measure of profitability that is easy to compare across companies.

Basic EPS uses the weighted average shares actually outstanding. Diluted EPS also assumes that convertible instruments such as options and convertible bonds are exercised, which gives a more conservative figure.

EPS is useful but not sufficient on its own: a company can boost EPS simply by buying back shares. Always compare EPS with revenue growth, cash flow and the share count to avoid being misled by financial engineering.