What are Earnings Per Share?

Earnings per share are the amount of money (aka profit) accrued for a given public stock per share of stock. Earnings per share commonly denoted as EPS can be broken down both quarterly or yearly. For example, if you have Company ABC Holdings, and they have issued common stock and the company earned $40,000,000 throughout the year. If the company has 10 million shares outstanding, for every share in the market, the company brought in $4 in Fiscal year 2025 (for example). So, they brought in $40 million dollars and with 10 million shares outstanding EPS is $4 for 2025.

The stock price is $80. So, the company is valued at 20 times current earnings. However, there is an expected growth rate of 25% so the company should expect next to bring in $5 a share next year. The forward earnings of this company is closer 16 forward earnings.

Most companies are valued based on EPS or if they aren’t profitable they are valued based on expectations of future profits. However, there are other important factors like the bottom line, not just the top line (EPS).

Revenue

For many companies Revenue is more important than earnings per share simply because the company is in growth mode and isn’t yet focused on generating a profit although it has the ability to do so somewhere down the line. There are also companies that don’t a way to profitability yet but have such a large platform that investors expect a way forward in the near future, even if one might not be so obviously visible right now.

Dividends

Years ago, dividends were the main reason investors bought stocks, although that has changed since many investors would now rather see those dividends re-invested. You could figure out the price of stock just based largely on the dividend it gave investors. This is still the case but most companies nowadays reinvest into research and opt to hold onto profits instead of letting them go back to shareholders. They can also buy back shares which sometimes has a more significant impact by reducing supply as opposed to dishing out dividends which may not help the companies long term vision.