Earnings Per Share (EPS): formula
Earnings Per Share (EPS): worked example
| Net income | $50,000,000 |
|---|---|
| Preferred dividends | $2,000,000 |
| Weighted average shares outstanding | 20,000,000 |
| Earnings per share | $2.40 |
| Earnings available to common shareholders | $48,000,000 |
Basic EPS is an accounting per-share measure, not cash distributed. Diluted EPS includes only dilutive potential shares under the applicable accounting rules; loss periods and convertible instruments need special numerator and denominator treatment. A share buyback can change EPS without changing operating profit.
Earnings Per Share (EPS): changing Net income
| Net income | Earnings per share | Earnings available to common shareholders |
|---|---|---|
| $40,000,000 | $1.90 | $38,000,000 |
| $45,000,000 | $2.15 | $43,000,000 |
| $50,000,000 (example) | $2.40 | $48,000,000 |
| $55,000,000 | $2.65 | $53,000,000 |
| $60,000,000 | $2.90 | $58,000,000 |
Earnings Per Share (EPS): compare input ranges
| Input | Tested from | To | Earnings per share: low input | Earnings per share: high input | Swing |
|---|---|---|---|---|---|
| Net income | $45,000,000 | $55,000,000 | $2.15 | $2.65 | $0.50 (21%) |
| Weighted average shares outstanding | 18,000,000 | 22,000,000 | $2.67 | $2.18 | $0.48 (20%) |
| Preferred dividends | $1,800,000 | $2,200,000 | $2.41 | $2.39 | $0.02 (0.8%) |
Earnings Per Share (EPS): individual input comparisons
| Input | Value | Earnings per share | Earnings available to common shareholders |
|---|---|---|---|
| Net income | $40,000,000 | $1.90 | $38,000,000 |
| $45,000,000 | $2.15 | $43,000,000 | |
| $50,000,000 | $2.40 | $48,000,000 | |
| $55,000,000 | $2.65 | $53,000,000 | |
| $60,000,000 | $2.90 | $58,000,000 | |
| Preferred dividends | $1,600,000 | $2.42 | $48,400,000 |
| $1,800,000 | $2.41 | $48,200,000 | |
| $2,000,000 | $2.40 | $48,000,000 | |
| $2,200,000 | $2.39 | $47,800,000 | |
| $2,400,000 | $2.38 | $47,600,000 | |
| Weighted average shares outstanding | 16,000,000 | $3.00 | $48,000,000 |
| 18,000,000 | $2.67 | $48,000,000 | |
| 20,000,000 | $2.40 | $48,000,000 | |
| 22,000,000 | $2.18 | $48,000,000 | |
| 24,000,000 | $2.00 | $48,000,000 |
Earnings Per Share (EPS): combined input changes
| Net income / Preferred dividends | $1,600,000 | $2,000,000 | $2,400,000 |
|---|---|---|---|
| $40,000,000 | $1.92 | $1.90 | $1.88 |
| $45,000,000 | $2.17 | $2.15 | $2.13 |
| $50,000,000 | $2.42 | $2.40 | $2.38 |
| $55,000,000 | $2.67 | $2.65 | $2.63 |
| $60,000,000 | $2.92 | $2.90 | $2.88 |
Earnings Per Share (EPS): which assumptions move the result?
Earnings Per Share (EPS): values and definitions
| Quantity and definition | Value used |
|---|---|
| Net income | $50,000,000 |
| Preferred dividends | $2,000,000 |
| Weighted average shares outstanding | 20,000,000 |
| Earnings per share | $2.40 |
| Earnings available to common shareholders | $48,000,000 |
Earnings Per Share (EPS): half and double Net income
| Net income | Earnings per share |
|---|---|
| $25,000,000 | $1.15 |
| $50,000,000 | $2.40 |
| $100,000,000 | $4.90 |
Use earnings available to common shareholders and the matching weighted-average common share count. The simple example subtracts preferred dividends from net income and uses basic shares. A diluted EPS computation may also adjust the earnings numerator for assumed conversions; substituting a diluted share count alone is not sufficient in every case.
Common error: Leaving preferred dividends in. Dividing all of net income by common shares overstates what the common holders earned.
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Earnings per share shrinks the whole company's profit down to what one share earns. Net income of $50 million, less $2 million owed to preferred holders, leaves $48 million for common shareholders. Spread over 20 million shares, that is $2.40 each.
Preferred dividends come out first because those holders are paid before the common owners see a cent.
Use the weighted average share count for the period, not the count at year end. Buybacks and new issues during the year change the average.
Use the P/E ratio calculator to value the stock from EPS, and the dividend payout ratio calculator for the share paid out. The market cap page relates shares to company value, and the book value per share page gives another per-share measure. Compare the growth rate with the PEG calculator.
Can I compute all diluted EPS by changing only the share count?
No. Assumed conversion can require numerator adjustments, and antidilutive securities are excluded. This tool’s displayed example is the simple basic-EPS calculation.
What is the difference between basic and diluted EPS?
Basic EPS uses weighted-average common shares. Diluted EPS incorporates applicable dilutive potential common shares and related numerator adjustments; antidilutive instruments are excluded.
Why subtract preferred dividends?
Preferred shareholders are paid before common shareholders, so those dividends are not available to the common shares the EPS describes.
Why use weighted average shares?
The share count changes during the year through issuance and buybacks, so the average over the period matches the profit earned across that time.