What does earnings per share (EPS) represent?

Earnings per share (EPS) is a crucial financial metric that indicates the portion of a company's profit allocated to each outstanding share of common stock. This calculation helps investors assess the profitability of a company on a per-share basis, making it easier to compare the financial performance of companies within the same industry or sector.

EPS is calculated as the net income of the company (after preferred dividends are deducted) divided by the weighted average number of shares outstanding during a specific period. This figure is essential for investors as it provides insight into a company's profitability relative to the number of shares they own, which can influence investment decisions.

Understanding EPS is vital for evaluating earnings trends, potential dividend payments, and overall company performance, as a higher EPS often indicates more profitability and can lead to increased stock prices.