CompanyGraph
Divides net income by shares outstanding without dilution adjustments, isolating the actual per-share earnings claim of current shareholders.
Basic EPS is net income divided by the number of common shares outstanding. It measures how much profit is attributable to each basic share.
Basic EPS is net income divided by the number of common shares outstanding. It measures how much profit is attributable to each basic share.
The calculation:
Basic EPS = (Net Income - Preferred Dividends) / Weighted Average Shares Outstanding
Key components:
- Net income: Profit after all expenses and taxes
- Preferred dividends: Subtracted because they belong to preferred shareholders
- Weighted average shares: Adjusts for share issuances and buybacks during the period
Why basic EPS matters:
- Per-share profitability: Shows earnings attributable to each share
- Valuation input: Used to calculate P/E ratio
- Growth tracking: Year-over-year changes show profit growth per share
- Dividend coverage: Compared to dividends per share for payout analysis
Basic vs. diluted EPS:
- Basic EPS: Uses actual shares outstanding
- Diluted EPS: Assumes all options, warrants, and convertibles are exercised
- Preferred metric: Diluted EPS is more conservative and widely used
Limitations:
- Earnings quality: EPS can be manipulated through accounting choices
- Share count manipulation: Buybacks boost EPS without improving business
- One-time items: Extraordinary gains or losses distort EPS
How it relates
Net IncomeNet income is the final profit after subtracting all expenses, interest and taxes. It is the bottom line of the income statement and represents the earnings available to shareholders.÷Basic Shares OutstandingBasic shares outstanding is the total number of shares currently owned by shareholders, used to calculate basic EPS and other per-share metrics.=EPS (Basic)