Earnings per share (EPS)
What is EPS
Earnings per share (EPS) is the total amount of earnings attributed to each individual share for over a period of one year. It’s a way of measuring the profits made by the company for each share outstanding.
How to calculate EPS (formula)
The formula for calculating EPS is using the net income of the company and subtract the preferred dividend paid:
Earnings per Share (EPS) = (Net Income − Preferred Dividends) / Shares Outstanding
Since dividends payable to preferred shareholders are not available to common shareholders they are deducted from the calculation of EPS.
Basic EPS vs Diluted EPS
EPS can be two different types: Basic EPS and Diluted EPS. The main difference is that diluted EPS account for diluting securities while the basic EPS don’t. Diluted securities are any financial instrument that can be converted or can increase the number of common shares outstanding for the company. Diluted EPS is important because it accounts for convertible securities like: convertible bonds, proffered shares, stock options etc.
Stocks with high PE ratios
| Name | Price to earnings (P/E) | Marketcap | Industry |
|---|---|---|---|
| NTNX Nutanix Inc | 99.59 | $18.74B | Software - Infrastructure |
| MAMA Mama's Creations Inc. | 98 | $436.58M | Packaged Foods |
| MNTK Montauk Renewables Inc | 97.5 | $277.4M | Utilities - Diversified |
| GXO GXO Logistics Inc | 97.3 | $6.01B | Integrated Freight & Logistics |
| FORM Formfactor Inc | 97.12 | $4.27B | Semiconductors |
| LYV Live Nation Entertainment Inc | 96.97 | $31.64B | Entertainment |
| IOSP Innospec Inc | 96.12 | $1.84B | Specialty Chemicals |
Why is EPS important
Earnings growth and future earnings potential are one of the most important factors for investors. A lot of investors use EPS and EPS growth as a proxy of estimating how well a company is doing. A company that is able to grow its EPS year over year is considerate as good investment that is commonly reflected in the rise in the share price.