Understanding Earnings Per Share (EPS)
Earnings Per Share (EPS) is the single most important metric for valuing a company. It tells you exactly how much profit is being generated for every share of stock you own.
Basic vs. Diluted: Why It Matters
Many companies issue stock options to employees or have convertible debt. If these are exercised, the number of shares increases, which "dilutes" your ownership. This is why looking at Diluted EPSis critical for long-term investors—it represents the true earning power in a "worst-case" share count scenario.
The Formula
Basic EPS = (Net Income - Preferred Dividends) / Weighted Avg Shares
Diluted EPS = (Net Income - Preferred Dividends) / (Weighted Avg Shares + Dilutive Potential Shares)
Investment Insight
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Read our full EPS Guide