Earnings Per Share (EPS) Explained

Overview

Earnings per share (EPS) is a financial metric that measures a company's profitability on a per-share basis. It is calculated by dividing the net income by the number of outstanding common shares.

Types of EPS

• Trailing EPS: Represents earnings generated over a prior period, typically a fiscal year.
• Trailing PE: A valuation multiple based on the last 12 months of actual earnings.
• TTM EPS: The most commonly used version, calculated by adding up earnings per share for the past four quarters.

Importance

EPS is a key indicator of a company's financial performance and is widely used by investors and analysts to:

• Compare the profitability of different companies in the same industry.
• Assess a company's ability to generate earnings.
• Make informed investment decisions.

Limitations

EPS should be used with caution as it does not take into account factors such as:

• Non-recurring expenses or income.
• Changes in accounting methods.
• The impact of stock splits or buybacks.