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Earnings per common share

Earnings per common share (EPS) is a measure of profitability that shows how much of a company’s profit is assigned to each of its common shares.

EPS is calculated as follows:

Earnings after tax (EAT) – Preferred dividends
Number of commons shares outstanding

Companies often set EPS targets to provide profit expectations for their shareholders. They can then measure and report actual performance against the target.

EPS is also a factor in setting the price per share of publicly traded stocks—often together with dividends per share.

More about earnings per share

In the example below, ABC Co. has earnings after tax of $20,000, preferred dividends of $3,000, and 100,000 outstanding common shares. Its earnings per share are:

($20,000 - $3,000)
= $17,000
= 17 cents

It means that if ABC Co. were to distribute 100% its profits to its common shareholders, each person would receive 17 cents for each share held.

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