Earnings Per Share (EPS) Calculator

What is EPS (earnings per share)?

Earnings per share (EPS) is one of the most widely used measures of a company’s profitability. It tells you how much profit the company generated for each outstanding common share over a given period (usually a quarter or a year).

Investors use EPS together with the share price (via the P/E ratio) to judge whether a stock looks cheap or expensive relative to its earnings and growth prospects.

EPS formulas

Basic EPS formula

• Net income: profit after all expenses, interest, and taxes.
• Preferred dividends: dividends owed to preferred shareholders.
• Weighted average shares: average number of common shares outstanding during the period, adjusted for issuances and buybacks.

Diluted EPS formula

Dilutive shares include stock options, warrants, RSUs, and convertible securities that could become common shares in the future. Diluted EPS is more conservative and is often preferred by analysts.

EPS growth rate

P/E ratio using EPS

A higher P/E ratio usually means the market expects higher growth, while a lower P/E can indicate lower growth expectations or potential undervaluation.

Worked example

Suppose a company reports the following for the year:

• Net income: $5,000,000
• Preferred dividends: $500,000
• Weighted average common shares: 2,000,000
• Potentially dilutive shares (options, etc.): 200,000
• Previous year EPS: $1.80
• Current share price: $40.50

Step 1 – Earnings available to common shareholders:

Step 2 – Basic EPS:

Step 3 – Diluted EPS:

Step 4 – EPS growth vs. previous year:

Step 5 – P/E ratio:

How to interpret EPS

• Higher EPS generally means higher profitability per share.
• Compare within the same industry; EPS levels vary widely across sectors.
• Look at the trend: consistent EPS growth is usually more important than one high number.
• Use with P/E: a high EPS with a low P/E may indicate undervaluation, but always check the quality of earnings.
• Check diluted EPS: a large gap between basic and diluted EPS means significant potential dilution for shareholders.

Limitations of EPS

• EPS can be affected by share buybacks, accounting choices, and one‑off items.
• It ignores capital structure (debt vs. equity) and cash flow quality.
• EPS alone does not tell you whether a stock is cheap or expensive – you need valuation ratios and peer comparisons.

FAQ

What is EPS (earnings per share)?

EPS is a profitability metric that shows how much net income a company generates for each common share. It is calculated as (Net income − Preferred dividends) divided by the weighted average number of common shares outstanding.

What is a good EPS value?

There is no universal “good” EPS. A higher EPS is better, but it must be evaluated relative to:

• Other companies in the same industry
• The company’s own historical EPS
• The share price (via the P/E ratio)

What is the difference between basic and diluted EPS?

Basic EPS uses only current common shares. Diluted EPS assumes all dilutive securities (options, warrants, convertibles, RSUs) are converted into common shares. Diluted EPS is usually lower and is considered a more conservative measure of earnings power per share.

Should I use EPS or diluted EPS for valuation?

Analysts often prefer diluted EPS because it reflects the potential impact of future dilution. However, you should be consistent: if you use diluted EPS, compare it with diluted EPS for peers and historical periods.

Can EPS be negative?

Yes. If a company reports a net loss, EPS will be negative. This is common for early‑stage or cyclical businesses. In that case, P/E is not meaningful, and other metrics (like revenue growth, cash burn, or EBITDA) may be more useful.