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Definition

Earnings per share (EPS)

Earnings per share (EPS) is a convenient measure of the net income earned on each share of common stock, it is computed by dividing net income by the number of weighted average common shares outstanding during the year. A measure of net income earned on a per share basis provides a useful perspective for determining profitability.

Earnings per Share = Net Income ÷ Weighted Average Common Shares Outstanding

The existence of preferred dividends slightly complicates the calculation of EPS. When a corporation has both preferred and common stock, we must subtract the current year’s preferred dividend from net income, to arrive at income available to common stockholders. 

 

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