Earnings per share (EPS), explained
EPS is the slice of a company's profit attached to each share — and rising EPS is what pulls a share price up over time. Here's how it works.
What it measures
Earnings per share is a company's profit divided across all its shares — the slice of profit attributable to each single share you own. Steadily rising EPS is, over the long run, the engine that drives a share price higher.
The formula
Worked example
A company earns £200m and has 100m shares:
Each share earned £2 of profit over the year.
Basic vs diluted EPS
Basic EPS uses the current share count. Diluted EPS also counts shares that could be created (from options or convertible debt) — a more conservative, and usually more honest, figure. If the two differ a lot, the company has significant potential dilution worth noting.
Why it matters
EPS feeds directly into the P/E ratio (price ÷ EPS). But watch for a trap: EPS can rise simply because a company bought back shares, not because the business grew. Always check whether EPS growth is coming from real profit growth or just a shrinking share count.
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