What Is Earnings Per Share (EPS)?

The profit of a firm is divided by the number of outstanding shares of its common stock to compute earnings per share (EPS). The resultant figure is used to determine a company’s profitability. It is customary for a firm to publish earnings per share (EPS) that has been adjusted for unusual items and probable share dilution.
The higher a company’s earnings per share (EPS), the more lucrative it is thought to be. Investors will pay more for a company’s shares if they believe the company’s earnings are higher than its share price, therefore a higher EPS implies better value.

Earning Per Share (EPS) is the portion of company’s profit allocated to each outstanding share of common stock.

EPS = ( Net income - Dividends on Preference Stock )/ Average outstanding share

EPS is not fully available to the shareholder for encashing. The Board of Directors of the company decide on the amount to be retained for expansion of business from PAT and rest is distributed as Dividends.

Therefore , EPS consists of two components

  1. Retained Earning per share
  2. Dividend