EPS

Earnings per share, or EPS, is net income divided by the number of shares outstanding. It tells you how much one share earned over a year. With $100 million of net income and 100 million shares, EPS is $1.

Why look at EPS instead of net income? Putting everything on a per-share basis lets you compare companies of different sizes, and more importantly it shows the portion attributable to the one share you own. Net income can rise while your share of it falls if the share count grows faster, and the headline profit figure hides that.

This makes changes in share count central. Issuing new shares dilutes EPS even when profit is unchanged. Buying back and cancelling shares does the reverse, lifting EPS as the count shrinks. So when EPS rises, it is worth asking whether the business improved or the denominator simply got smaller.

EPS is also the basis for the price-to-earnings ratio: divide the share price by EPS. Because a single year's EPS can spike on one-off items such as selling a building, tracking a steady upward trend over three to five years is far more useful than any single figure.