Earnings per share (EPS)
Learn what earnings per share (EPS) is, how to calculate it, and what a good EPS looks like.
Published Monday 17 August 2026
Table of contents
Key takeaways
- Earnings per share (EPS) measures a company's net profit, minus preferred dividends, divided by its average number of ordinary shares, showing profitability on a per-share basis.
- You can calculate EPS with the formula: (net profit − preferred dividends) / average number of ordinary shares outstanding.
- EPS works best alongside other measures like the price-to-earnings (P/E) ratio, so read it in context rather than on its own.
- Share buybacks, new share issuance and accounting choices can distort EPS, so check the underlying profit figures and share count trends.
What is earnings per share (EPS)?
Earnings per share (EPS) measures a company's profit attributable to each ordinary share, making it one of the most widely used ways investors assess profitability. It's calculated by taking net profit, subtracting any preferred dividends, and dividing by the average number of ordinary shares outstanding. Companies listed on the Philippine Stock Exchange (PSE) report EPS figures in their quarterly and annual results, giving shareholders a clear picture of how profit translates into value per share.
How to calculate earnings per share
The basic formula for EPS is:
EPS = (net profit − preferred dividends) / average number of ordinary shares outstanding
Here's what each component means:
- Net profit: the company's total earnings after all expenses, taxes and interest have been deducted
- Preferred dividends: payments owed to preferred shareholders, which must be subtracted because EPS applies only to ordinary shareholders
- Average ordinary shares outstanding: the weighted average number of ordinary shares held by investors during the reporting period
Example EPS calculation
Suppose a PSE-listed company reports a net profit of ₱20,000,000 for the year. It owes ₱2,000,000 in preferred dividends and has an average of 8,000,000 ordinary shares outstanding. The calculation looks like this:
EPS = (₱20,000,000 − ₱2,000,000) / 8,000,000EPS = ₱18,000,000 / 8,000,000EPS = ₱2.25 per share
This means that for every ordinary share, the company generated ₱2.25 in earnings during that period.
Basic EPS vs diluted EPS
Investors often see two EPS figures reported side by side. Understanding the difference helps you interpret a company's earnings more accurately.
Basic EPS
Basic EPS uses the standard formula described above. It considers only the ordinary shares currently outstanding and gives you a straightforward measure of earnings per share.
Diluted EPS
Diluted EPS accounts for potential shares that could be created if stock options, convertible bonds and warrants were exercised or converted. Because these instruments increase the total share count, diluted EPS is typically lower than basic EPS. It offers a more conservative view of a company's earnings capacity.
Types of earnings per share
EPS can be expressed in different ways depending on the time frame and adjustments applied. Here are the main types you'll encounter:
- Trailing EPS: based on actual earnings over the past 12 months, providing a backward-looking measure of performance
- Forward EPS: derived from analyst forecasts, estimating what a company is expected to earn in future periods
- Adjusted EPS: strips out one-off or non-core items, such as restructuring costs or asset sales, to show normalised earnings
What is a good earnings per share?
There's no universal number that defines a "good" EPS. What counts as strong performance depends on the industry, the company's growth stage and how it compares to peers.
A positive and growing EPS is generally a healthy sign. For example, a property company listed on the PSE might have a different typical EPS range than a technology firm or a consumer goods business. The most useful comparison is against sector peers and the company's own historical figures, rather than looking at EPS in isolation.
How EPS is used
EPS is a building block for several key investment decisions. Below are some common applications.
Comparing companies
Investors use EPS to compare the earnings power of companies within the same industry. A higher EPS can indicate stronger profitability, though it should be weighed alongside other profitability ratios.
Calculating the price-to-earnings (P/E) ratio
The P/E ratio is one of the most popular valuation metrics. It's calculated as:
P/E = share price / EPS
A lower P/E may suggest a stock is undervalued relative to its earnings, while a higher P/E could signal growth expectations.
Tracking performance over time
Reviewing EPS across multiple quarters or years helps you spot trends. Consistent EPS growth can signal a company is expanding its profitability, while declining EPS may warrant closer investigation.
Where to find EPS
EPS appears near the bottom of the income statement, after net profit has been calculated. PSE-listed companies publish these figures in their quarterly and annual financial reports, which are available to the public. Checking these reports lets you track how a company's earnings have changed over time.
Limitations of EPS
While EPS is a useful metric, it doesn't tell the whole story. Keep these limitations in mind:
- It doesn't reflect capital structure or debt levels, so two companies with the same EPS may have very different risk profiles
- Share buybacks can inflate EPS by reducing the share count, while new share issuances can dilute it
- Accounting choices, such as depreciation methods or revenue recognition policies, can affect comparability across companies
- It ignores how efficiently a company uses its assets to generate profit
- One-off gains or losses can distort EPS, making a single period look better or worse than ongoing performance
Track your business profitability with Xero
Understanding EPS gives you a window into how listed companies measure earnings, and small business owners can apply the same thinking to their own finances. With Xero's financial reporting tools, you can watch your profitability in real time and make confident decisions about where your business is heading. Sign up today and get one month free.
FAQs on earnings per share
Below are answers to common questions about EPS.
Can EPS be negative?
Yes. If a company reports a net loss instead of a profit, its EPS will be negative. This indicates the company lost money on a per-share basis during that period.
When should you look at diluted EPS instead of basic EPS?
Diluted EPS is more relevant when a company has significant stock options, convertible securities or warrants outstanding. It shows what EPS would be if all those instruments were converted into ordinary shares.
How does EPS affect share price?
EPS influences investor sentiment and valuation ratios like the P/E ratio. A rising EPS often supports a higher share price, while falling EPS can put downward pressure on it, though many other factors also come into play.
How often is EPS reported?
PSE-listed companies typically report EPS quarterly and annually in their financial disclosures. This lets investors monitor performance throughout the year.
How does EPS relate to dividends?
EPS represents the earnings available to shareholders, but it doesn't mean all of that profit is paid out as dividends. A company's board decides how much to distribute and how much to reinvest in the business.
Does EPS tell you everything about a company's value?
No. EPS focuses on earnings and ignores factors like cash flow, debt levels, asset efficiency and growth potential. It's best used alongside other metrics for a fuller picture of a company's financial health.
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.