Earnings Per
Share.

What is EPS?

Earnings Per Share measures how much profit a company allocates to each outstanding common share. It's one of the most widely used profitability metrics — both for valuing a company (P/E ratio) and for tracking year-over-year performance.

Basic EPS

Basic EPS  =  (Net Income − Preferred Dividends) / Weighted-Avg Common Shares

Diluted EPS

Diluted EPS assumes every convertible security (options, warrants, convertible bonds) is converted to common shares — so the denominator grows and the per-share number shrinks.

Diluted EPS  =  (Net Income − Preferred Dividends) / (Common Shares + Dilutive Shares)

P/E ratio & earnings yield

If a stock price is provided, two valuation ratios fall out for free:

P/E Ratio       =  Stock Price / Basic EPS
Earnings Yield  =  Basic EPS / Stock Price × 100

Worked example

EX: Net Income $1,000,000, Preferred Dividends $50,000,
Common Shares 500,000, Dilutive 25,000, Stock $30
Income to Common =  1,000,000 − 50,000 = $950,000
Basic EPS        =  950,000 / 500,000  = $1.90
Diluted EPS      =  950,000 / 525,000  = $1.81
P/E Ratio        =  30 / 1.90          = 15.79
Earnings Yield   =  1.90 / 30 × 100    = 6.33%