Legal Definitions - earnings per share

Earnings per share (EPS) is a measure of a corporation's value that shows how much profit the company has made for each outstanding share of common stock. It is calculated by dividing the corporation's net income by the number of outstanding shares of common stock.

For example, if a corporation has a net income of $1 million and has 500,000 outstanding shares of common stock, the EPS would be $2 per share ($1,000,000 ÷ 500,000 = $2).

Investors use EPS to determine the fair market value of a corporation's stock. A higher EPS indicates that the company is more profitable and may be a good investment.

Fully diluted earnings per share is another measure that takes into account all convertible securities and stock options. It assumes that all convertible securities have been transferred to common equity and all stock options have been exercised. This gives a more accurate picture of the company's earnings potential.

For example, if a corporation has a net income of $1 million, has 500,000 outstanding shares of common stock, and has 50,000 convertible securities and 25,000 stock options, the fully diluted EPS would be $1.67 per share (($1,000,000 ÷ (500,000 + 50,000 + 25,000)) = $1.67).

Overall, EPS is an important metric for investors to consider when evaluating a company's financial health and potential for growth.