Legal Definitions - EPS

Term: EPS

Definition: EPS stands for Earnings Per Share. It is a financial metric that calculates the amount of profit a company has earned per share of its outstandingcommon stock. It is calculated by dividing the company's net income by the total number of outstanding shares of common stock.

Example: If a company has a net income of $1 million and has 500,000 outstanding shares of common stock, its EPS would be $2 per share ($1 million divided by 500,000 shares).

Explanation: EPS is an important metric for investors as it helps them understand how much profit a company is making per share of its stock. A higher EPS indicates that a company is more profitable and can potentially lead to an increase in the stock price. However, it is important to note that EPS should not be the only factor considered when making investment decisions as it can be influenced by various factors such as stock buybacks and dilution of shares.