Earnings per share divides the profit that belongs to common shareholders by the weighted average number of common shares outstanding during the period. The profit figure is net income after subtracting dividends owed to preferred shareholders. A company with 100 million dollars of earnings for common holders and 50 million shares has an EPS of 2 dollars.
It is one of the most widely quoted numbers in investing. It makes it possible to compare results across companies of different sizes, and it is the base of the price-to-earnings ratio. Companies must report it in their income statements, and it can be a negative number when there is a loss.
It has limits. EPS is affected by buybacks, which reduce the share count, and by share issuance, which increases it. It can be shaped by one-time items and by accounting choices. Companies also report adjusted versions that differ from the standard figure.
Look at both basic and diluted EPS, compare the trend over time, and read what is included in the profit figure.