Definition of Earnings per Share
The earnings per share ratio, or simply earnings per share, or EPS, is a corporation’s 1) net income (or earnings) after tax that is available to its common stockholders, divided by 2) the weighted average number of shares of common stock that are outstanding during the period of the earnings.
If a corporation had preferred stock outstanding, the required preferred stock’s dividend is shown as a deduction before the earnings that are available for common stockholders.
If a U.S. corporation’s shares of common stock are traded on a stock exchange, the earnings per share must appear on the face of its income statement.
Example of Earnings per Share
Assume a corporation has only one class of common stock outstanding and has no securities that can be converted into shares of common stock. During its most recent year its earnings (net income after income tax expense) were $9,410,000 and it had 900,000 shares of common stock from January 1 through June 30, and 1,100,000 shares from July 1 through December 31. The corporation will report earnings per share of $9.41 ($9,410,000/1,000,000).
