What is EPS?
Earnings Per Share (EPS) refers to the portion of profit given to each shareholder. It measures companies profitability.
The formula is
=(Net income – Dividends to Preference stock)/Average outstanding shares
Dividends to preference stock is deducted from Net income because it is a fixed commitment. The purpose of EPS is to determine how much additional amount a company was able to make over and above their fixed commitment.
The historical EPS numbers are looked to determine if the company has been growing or not. It is looked at in conjunction with other factors and never independently.
” Focus on return on equity, not earnings per share. ” – Warren Buffet