Earnings per share (EPS)

Posted in Finance, Accounting and Economics Terms, Total Reads: 2115

Definition: Earnings per share (EPS)

It is the return which a shareholder earns on every share held. It is denoted as:

Net income after tax available for equity share holders/ Outstanding equity shares throughout the year

Net income available for equity share holders is founded out by deducting preference dividend from the Profit after Tax (PAT)

The outstanding equity shares throughout the year are the weighted average of the shares outstanding during the year and the treasury stock is deducted from it.

Refer to the example below to calculate EPS



Cost of goods sold (COGS)




Profit before Taxes


Taxes (@40%)


Profit after taxes


Preferred dividends


Net income available to common shareholders


No of outstanding shares




The EPS should be as high as possible such that the dividends can be paid to the equity shareholders out of the EPS (or) the earnings can be reinvested for the future growth.

Higher the EPS, higher would be the market value as market value is generally denoted as EPS* P/V. Here if P/V is fixed, then increase in share price would be because of high EPS.

Hence, this concludes the definition of Earnings per share (EPS) along with its overview.

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