Earnings per share (EPS) is a company’s net income per share of common stock. It’s calculated by taking the net income available to common shareholders (which is net income minus dividends for preferred shareholders and minus income attributable to noncontrolling interests) and dividing it by the weighted-average number of common shares outstanding. Earnings per share is the most widely used measure of profit. It’s the only ratio that public companies are required to report on the income statement: both U.S. GAAP and IFRS require this. And earnings per share is the accounting metric you’ll hear most about in the financial news, particularly during “earnings season.” So why do people care so much about earnings per share? The answer has to do with valuation. Many investors value companies based on their expected future cash flows. Thus, analysts spend a lot of time trying to predict what future cash flows will be. …
