Earnings per share (EPS)
What earnings per share (EPS) is, how to calculate it, and why investors use it to gauge profitability.
Published Wednesday 12 August 2026
Table of contents
Key takeaways
- Earnings per share (EPS) measures how much net profit a company earns for each ordinary share, helping investors compare profitability across JSE-listed businesses.
- Basic EPS uses the current share count, while diluted EPS factors in convertible instruments like stock options, giving a more conservative view of potential earnings.
- EPS alone doesn't tell the full story, as it ignores debt levels, capital efficiency and can be distorted by share buybacks or one-off gains.
- Consistent EPS growth over time is often more meaningful than a single figure when evaluating a company's financial health.
What is earnings per share (EPS)?
Earnings per share (EPS) is a financial metric that shows how much net profit a company generates for each ordinary share outstanding. It's one of the most widely used indicators for assessing a company's profitability and is reported by JSE-listed companies in their financial results.
How to calculate earnings per share
The standard EPS formula is:
EPS = (net profit − preferred dividends) / average number of ordinary shares outstanding
You can find net profit on a company's income statement. Here's a worked example using South African rand:
A JSE-listed company reports R2 million in net profit and pays R200,000 in preferred dividends. It has an average of 800,000 ordinary shares outstanding over the period. The calculation is:
EPS = (R2,000,000 − R200,000) / 800,000 = R2.25
This means the company earned R2.25 for every ordinary share.
Why weighted-average shares are used
The denominator uses a weighted average of ordinary shares over the reporting period rather than a simple snapshot. This approach accounts for changes in the share count that occur during the year, such as new share issues or buybacks, giving a more accurate picture of per-share earnings.
Ordinary shares vs preferred shares
Preferred dividends are subtracted from net profit in the EPS formula because earnings per share measures what's available to ordinary shareholders. Preferred shareholders receive their fixed dividends first, so the remaining profit belongs to ordinary shareholders.
Basic EPS vs diluted EPS
Companies typically report two versions of EPS to give investors a complete view of potential share dilution.
Basic EPS
Basic EPS uses only the current number of ordinary shares outstanding. It provides a straightforward measure of earnings for existing shareholders.
Diluted EPS
Diluted EPS factors in all securities that could be converted into ordinary shares, including stock options, convertible bonds and warrants. Because it assumes more shares in circulation, diluted EPS is almost always lower than basic EPS. Investors use it to understand what earnings might look like if all potential dilution occurred.
Take the same JSE-listed company from the earlier example, with R1.8 million in earnings available to ordinary shareholders (R2 million net profit less R200,000 preferred dividends) and 800,000 ordinary shares, giving a basic EPS of R2.25. If it also has 100,000 stock options that could convert into ordinary shares, the diluted share count rises to 900,000. Diluted EPS then becomes R1,800,000 / 900,000 = R2.00, lower than the basic figure of R2.25.
Adjusted EPS
Adjusted EPS strips out one-off or non-recurring items to show a company's underlying performance. Examples of excluded items include gains from asset sales, restructuring charges and impairment write-downs. Because there's no standard definition, companies may calculate adjusted EPS differently. When comparing adjusted EPS across businesses, check exactly which items have been excluded and treat the figures with care.
Where to find a company's EPS
JSE-listed companies report EPS in their income statements as part of quarterly and annual financial statements. You can access these reports directly from the company's investor relations page or through the JSE's published filings.
How EPS is used
EPS serves several purposes for investors analysing publicly traded companies.
Comparing companies
EPS allows investors to compare profitability across companies of different sizes by standardising earnings on a per-share basis. Keep in mind that differing accounting policies can distort cross-company comparisons, so always consider the underlying figures.
Calculating the price-to-earnings (P/E) ratio
The P/E ratio divides a company's share price by its EPS. This metric helps investors assess whether a share is overvalued or undervalued relative to its earnings.
Tracking performance over time
Monitoring EPS quarter by quarter or year on year reveals whether a company's profitability is improving. Consistent growth in EPS can signal strong financial management and operational efficiency.
Trailing EPS vs forward EPS
Trailing EPS uses historical data from the past 12 months, while forward EPS relies on analyst forecasts. Trailing EPS reflects actual performance, whereas forward EPS indicates market expectations for future earnings.
What is a good earnings per share?
There's no single number that qualifies as a good EPS. The benchmark depends on the industry, company size and growth stage. What matters more is how EPS compares to peers and whether it shows consistent growth over time. When a company beats or misses analyst EPS forecasts, the share price often moves in response. For deeper analysis, consider EPS alongside profitability ratios that examine returns on assets and equity.
Limitations of EPS
While EPS is useful, it has several limitations you should consider.
- It ignores capital structure and debt levels, so two companies with identical EPS may carry very different financial risk.
- Share buybacks can inflate EPS by reducing the number of shares outstanding without improving actual profits.
- Accounting choices (such as depreciation methods or revenue recognition timing) affect the net profit figure and therefore EPS.
- EPS doesn't measure how efficiently a company uses its assets to generate earnings.
- One-off gains or losses can distort EPS, making underlying performance harder to assess.
Given these gaps, it's worth looking at additional measures. Learn how to measure profitability using a range of metrics for a fuller picture.
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FAQs on earnings per share
Here are answers to common questions about earnings per share.
Can EPS be negative?
Yes, EPS turns negative when a company reports a net loss rather than a profit. A negative EPS means the business lost money for each share outstanding during that period.
When should you look at diluted EPS instead of basic EPS?
Look at diluted EPS when a company has significant stock options, convertible bonds or other dilutive securities. It gives a more conservative view of what earnings per share could become if those instruments convert.
How does EPS affect share price?
Share prices often rise when a company reports higher-than-expected EPS and fall when EPS misses forecasts. Market reaction depends on investor expectations and broader economic conditions.
Where can you find a company's EPS?
JSE-listed companies publish EPS in their quarterly and annual financial reports. These documents are available on the company's website and through the JSE.
What is the difference between EPS and adjusted EPS?
EPS uses net profit as reported, while adjusted EPS excludes one-off items like restructuring costs or asset sale gains. Adjusted EPS aims to show ongoing operational performance.
Does EPS tell you everything about a company's value?
No, EPS focuses only on earnings relative to shares outstanding. It doesn't account for debt, cash flow, asset quality or growth potential, which all influence a company's overall value.
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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.