The definition in one line
Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding common share. The basic formula is EPS = (Net Income − Preferred Dividends) ÷ Shares Outstanding. EPS is the workhorse profitability metric — it is the denominator of the P/E ratio, the input to dividend-coverage analysis, and the headline number reported every quarter at earnings time.
Compute EPS for any ticker — with the three inputs auto-filled from filings — using the EPS calculator.
Basic vs diluted — the only distinction that matters
Basic EPS uses only common shares actually outstanding today. Diluted EPS assumes that every potentially-issuable share gets converted: employee stock options that are in-the-money, restricted stock units, convertible bonds, convertible preferred stock, and warrants. Diluted EPS is therefore always less than or equal to basic EPS.
Analysts and most financial press default to diluted EPS because it reflects what each existing share would earn after the company's known dilution overhang plays out. For technology companies with large equity-compensation programmes the gap between basic and diluted can be 5–15%; for companies without options programmes the two numbers are essentially identical.
Why preferred dividends are subtracted from net income
Preferred shareholders get paid first. Their dividends are a contractual obligation that comes out of net income before any profit is allocated to common shareholders. EPS measures profit per common share, so the preferred dividend stream is removed from the numerator. Most large U.S. companies have no preferred stock outstanding, so this term is zero — but for banks, insurers, REITs and certain utility holding companies it is non-trivial.
How buybacks lift EPS without changing the business
A share buyback reduces shares outstanding without changing net income. Mechanically, a smaller denominator with the same numerator yields a higher EPS — even if the underlying business has not improved. Buybacks are one of the most common reasons EPS grows faster than reported earnings.
This is not a "cheat": shareholders own a larger slice of the company after the buyback. But when comparing EPS growth across companies, knowing which fraction comes from net-income growth versus share-count shrinkage is important. For total-earnings comparisons that ignore the per-share denominator, see the earnings ranking.
Related concepts and tools
- P/E ratio explained — EPS is the denominator.
- Profit margin explained — EPS measures profit per share; margins measure profit per dollar of revenue.
- EPS calculator — auto-fills net income, preferred dividends and shares outstanding.
- Price target methodology — uses TTM EPS and analyst-consensus EPS as inputs.
To inspect EPS history quarter by quarter, open any company hub.