Earnings per share
What is earnings per share?
Earnings per share divides a company's net income by its share count, giving profit on a per-share basis. It is the figure most valuation ratios, including the price-to-earnings ratio, are built on.
EPS = Net income ÷ Shares outstanding
- Written by
- Suggested Investments Research Team
- Content type
- Reference definition
- Published
- 2026-09-13
- Last reviewed
- 2026-09-13
Basic versus diluted
Diluted EPS includes shares that could be created from options, restricted stock and convertible securities. Diluted EPS is always equal to or lower than basic EPS, and it is the more conservative figure to use.
Buybacks can flatter EPS without flattering the business
Reducing the share count raises EPS even if net income is unchanged, because the same profit is divided among fewer shares. A rising EPS driven mostly by a shrinking share count is a different story from one driven by growing profit.
A worked example
A company with $4bn net income and 2 billion shares outstanding reports $2.00 EPS. If it buys back 200 million shares with income unchanged, EPS rises to roughly $2.22 with no change in underlying profitability.
The mistake people make
Comparing EPS figures across companies without accounting for very different share counts, or without checking whether a one-off item inflated the number.
How we use it
EPS trend feeds Fundamental Momentum, and we separately track the net change in shares outstanding through Dilution Control, so EPS growth driven purely by buybacks is not mistaken for organic improvement.
Related terms
Sources and methodology
- EDGAR full-text and structured filing data — U.S. Securities and Exchange CommissionPrimary source
- Intelligent Accumulation methodology — Suggested InvestmentsPrimary source
Keep reading
- Investing Glossary
Every investing term we use, defined once and in plain English — from compounding and drawdown to Form 13F and share dilution.
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Educational information only. Nothing here is a recommendation to buy or sell any investment, and no research measurement removes the risk of loss.