Earnings per Share

Earnings per Share (EPS) is a popular profitability ratio, measured as the portion of a company’s earnings allocated to each outstanding share of common stock.

EPS is calculated as:

Diluted shares include the impact of potentially dilutive securities that expand the share base, so diluted EPS will almost always be smaller than basic EPS. It is often referred to as net income per share or simply EPS. Both basic and diluted EPS are usually presented on the income statement.

18. EPS
Exercise
Q1:A food retailer has $15 million in net earnings. It has 5 million shares of common stock outstanding and stock options that can be convertible into 2 million shares.

Calculate:

  1. Basic EPS

  2. Diluted EPS

18. EPS
Solution
1:

  1. Basic EPS = $15 million/5 million = $3.00

  2. Diluted EPS = $15 million/7 million = $2.14

Notice that Diluted EPS < Basic EPS.

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