Earnings per share, also known as "EPS," is an important financial metric used for value comparisons between company income and stock prices. Publicly traded corporations must publish quarterly and annual earnings reports that usually include EPS. You can also look up EPS on several different financial websites such as Yahoo Finance.
Company earnings reports reflect detailed accounting that occurred during a quarter or annual period. The report includes "the bottom line" called net income, which equals gross revenue minus cost of revenue.
EPS is calculated by dividing net income for a given period, such as a quarter or year divided by the stock's total number of shares outstanding. Since EPS can reflect different time periods, EPS for a given stock may not be consistent in various publications.
EPS Vs. P/E Ratio
EPS is a metric used to calculate P/E ratio, which means price to earnings ratio. It is expressed as a fraction or multiple. So if a stock is trading 10 times its EPS, it has a P/E ratio or earnings multiple of 10.
Periodically companies add new shares to their float, which affects EPS, requiring a weighted average. Adding shares to the float is known as a "dilution."
Financial experts on Wall Street make predictions on EPS before a company's report. If several analysts make predictions for a given stock, then the earnings estimate becomes an average.
If the company's earnings report features a higher EPS than "analyst estimates" the company is said by the financial media to "beat the street" and the news is called an "earnings surprise," which can rally the stock. However, if the report reveals EPS did not beat estimates, it can plunge the stock and is called an "earnings miss."
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