EPS is one of the most-watched financial metrics, but it comes in several varieties. Understand the differences to avoid being misled.
Earnings Per Share (EPS) is one of the most frequently cited metrics in financial news. It represents the portion of a company's profit allocated to each share of common stock. However, not all EPS numbers are created equal.
The simplest calculation:
Basic EPS = (Net Income - Preferred Dividends) / Weighted Average Shares Outstanding
This uses the actual number of shares currently outstanding.
Diluted EPS accounts for all securities that could become shares:
Diluted EPS = (Net Income - Preferred Dividends) / (Weighted Average Shares + Dilutive Securities)
Diluted EPS is always less than or equal to basic EPS. It represents the worst-case scenario for existing shareholders.
Why it matters: A company might report strong basic EPS but have significant option overhang that will dilute shareholders. Always look at diluted EPS.
Companies often report an "adjusted" or "non-GAAP" EPS alongside their official GAAP number. Common adjustments include:
The controversy: Adjustments can make a company look more profitable than it is under accounting rules. Some adjustments are legitimate (one-time events), while others are recurring costs dressed up as exceptions.
SharesLocker extracts EPS values directly from XBRL-tagged SEC data, showing both basic and diluted figures with period-over-period comparisons. When a company's EPS changes materially, the exact filing value is cited so you can verify it yourself rather than relying on headline numbers.