Earnings per share (EPS)

📈 Earnings Per Share (EPS) – Explained Simply

EPS is a key profitability metric that tells you how much net profit is earned for each outstanding share of a company's common stock.

---

🧮 EPS Formula

$$\text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Weighted Average Common Shares Outstanding}}$$

---

✅ Key Terms

• Net Income: Profit after tax from the income statement.

• Preferred Dividends: Subtracted if preferred shares exist.

• Weighted Average Shares: Adjusts for share buybacks or new issues during the year.

---

📊 Types of EPS

Type	Meaning
Basic EPS	Based on currently outstanding shares
Diluted EPS	Adjusts for potential shares (stock options, convertible debt)
Adjusted EPS	Removes one-time items for clearer analysis

---

🧠 Why EPS Matters

• Shows profitability per share.

• Used in valuation ratios like P/E (Price-to-Earnings).

• Helps compare profitability across companies or time periods.

---

🔎 Example Calculation

Let’s say:

• Net Income = ₹10 crore

• Preferred Dividends = ₹1 crore

• Shares Outstanding = 1 crore

$$\text{EPS} = \frac{₹10 \text{ crore} - ₹1 \text{ crore}}{1 \text{ crore}} = ₹9$$

So, each share earned ₹9 in profit this year.

---

⚖️ EPS Interpretation

EPS Value	Interpretation
📈 Increasing EPS	Stronger profitability
📉 Falling EPS	Earnings pressure
📊 Compare to industry	Higher EPS is better but context matters
🧩 Use with P/E Ratio	P/E = Share Price / EPS → measures stock valuation