EPS (Earnings Per Share)
Net income divided by shares outstanding. EPS is the single most-watched earnings metric for valuing a stock.
EPS = Net Income ÷ Weighted Average Shares Outstanding
Earnings per share (EPS) tells you how much profit the company generated for each outstanding share. It is the building block for the P/E ratio and the yardstick Wall Street analysts use to set price targets.
There are two flavors: basic EPS uses shares outstanding as-is; diluted EPS also counts all convertible instruments — options, warrants, convertible bonds — that could become shares. Diluted EPS is the more conservative and widely cited figure.
Analysts publish consensus EPS estimates before each quarter. Whether the company beats, meets, or misses that consensus is often the dominant driver of the stock's reaction on earnings day, regardless of the absolute EPS level.
On the desk
A company earns $500 million net income with 250 million diluted shares outstanding. Diluted EPS = $500M ÷ 250M = $2.00. If the consensus estimate was $1.85, the company beat by $0.15 — a 8% beat that typically triggers a gap-up.