What does EPS mean?

EPS is earnings per share, the company’s net profit divided by the number of shares outstanding. A company that earned $10 billion with 5 billion shares has an EPS of $2. It turns a giant, hard-to-picture profit figure into something you can compare directly to the share price.

That comparison is the P/E ratio. A $2 EPS on a $40 stock gives a P/E of 20; investors are paying $20 for every dollar of annual profit. Because EPS is the denominator, it is the number analysts forecast and the number companies are judged against every quarter. "Beat on EPS" means profit per share came in above the forecast.

You will see a few flavours. "Diluted" EPS counts shares that could exist if options and convertible securities were exercised, and is the conservative one to use. "Adjusted" or "non-GAAP" EPS strips out items the company considers one-off, which is sometimes fair and sometimes a way to make a bad quarter look better. Companies love to headline the adjusted number; the official number is in the same release.

EPS can rise without profit rising, if the company buys back shares and shrinks the denominator. That is real value to shareholders, but it is worth knowing which lever moved.