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Finance Dictionary and Glossary of Investment Terms
Earnings per share (EPS)
A company's profit divided by its number of outstanding shares. If a company earning $2 million in one year had $2 million shares of stock outstanding, its EPS would be $1 per share. In calculating EPS, the company often uses a weighted average of shares outstanding over the reporting term.
Net income divided by common shares outstanding. A company that earns $1 million for the year and has a million shares outstanding has an EPS of $1. This EPS figure, which represents how much of earnings each share is entitled to, is important as the basis for various calculations an investor might make in assessing a stock''s priciness. The most widely used indicator of whether a stock is over- or undervalued, for example, is the price/earnings (P/E) ratio, which relates share price to earnings per share.