What Are Earnings Per Share: Answers to the Most Common Questions
Earnings per share (EPS) is net income divided by the weighted average shares outstanding. If a company earns $10 billion and has 5 billion shares, EPS is $2.00. That single number sits at the core of the P/E ratio, the forward valuation model, and almost every earnings call headline you will ever read. Understanding what are earnings per share is the first step toward reading any income statement with confidence.
This post works through every common question investors ask about EPS: how to calculate it, what makes a number "good," and why diluted EPS is almost always the one that matters. We pull real examples from Apple (AAPL), Microsoft (MSFT), and Berkshire Hathaway (BRK.B) throughout.
Key Takeaways
- EPS equals net income minus preferred dividends, divided by weighted average common shares outstanding.
- Diluted EPS includes stock options, warrants, and convertible bonds in the share count. Always use diluted EPS for valuation.
- Apple's trailing diluted EPS runs near $6.43, which at a share price around $182 gives a P/E of 28.3.
- EPS growth matters as much as the level. A flat EPS at $5.00 for five years is a very different story than EPS growing from $2.00 to $5.00.
- EPS can be manipulated through share buybacks. A company can grow EPS while revenue stays flat simply by retiring shares.
- Our DCF calculator uses EPS growth as one of the four primary inputs for intrinsic value estimation.
What Are Earnings Per Share, Exactly
EPS is the accounting answer to a simple question: if you owned one share of this company, how much of its annual profit belongs to you?
The formula is straightforward.
Basic EPS = (Net Income - Preferred Dividends) / Weighted Average Basic Shares
The "weighted average" part accounts for shares issued or repurchased during the year. If a company had 100 million shares in January and bought back 10 million in July, the weighted average for the year is roughly 95 million, not 90 million.
Most financial data sources report two versions: basic and diluted. Basic counts only actual shares. Diluted adds in stock options, restricted stock units, warrants, and convertible instruments that could become shares. Diluted is the conservative number and the one that matters for valuation.
Why Diluted EPS Is the Number to Use
Options and restricted stock units are real economic costs. When executives exercise options at $50 per share on a $150 stock, they pocket $100 per share. That dilution comes out of the pockets of existing shareholders.
Microsoft (MSFT) had a diluted share count of roughly 7.46 billion shares in its most recent fiscal year, versus a basic count of around 7.43 billion. The gap looks small, about 0.4%, but on a stock with a P/E of 32.1 and ROIC of 35.2%, that precision matters when you are building a DCF.
Companies in heavy growth mode often have far larger gaps. A pre-profit SaaS company might have 15-20% more diluted shares than basic shares outstanding, which means reported basic EPS overstates what shareholders will actually receive once all those options vest.
What Makes a Good EPS
There is no universal threshold. EPS only becomes meaningful in context.
| Company | Diluted EPS (TTM) | P/E Ratio | EPS Growth (5Y) |
|---|---|---|---|
| Apple (AAPL) | $6.43 | 28.3 | 14.8% CAGR |
| Microsoft (MSFT) | $11.89 | 32.1 | 18.2% CAGR |
| Berkshire Hathaway (BRK.B) | $22.60 | 9.8 | 12.1% CAGR |
| Johnson & Johnson (JNJ) | $8.44 | 15.4 | 6.3% CAGR |
| Coca-Cola (KO) | $2.47 | 23.7 | 4.9% CAGR |
BRK.B's EPS of $22.60 looks large in absolute terms, but the P/E of 9.8 tells you the market prices in relatively modest future growth. Apple's EPS of $6.43 is lower in dollar terms, but at a P/E of 28.3, the market is pricing in continued 14-15% annual EPS expansion.
"Good" EPS is an EPS that is growing faster than its price implies. That is the value investor's frame, and it is what our DCF calculator is designed to surface.
How EPS Connects to the P/E Ratio
The P/E ratio is simply share price divided by EPS. Every time you read a P/E, you are looking at EPS in disguise.
Apple trades near $182. With a diluted EPS of $6.43, the P/E is 182 / 6.43 = 28.3. That P/E tells you investors are paying $28.30 for every dollar of Apple's trailing annual earnings. Whether that is expensive depends on EPS growth, the cost of capital, and the durability of Apple's margins.
The forward P/E uses expected next-twelve-months EPS rather than trailing. If analysts estimate Apple earns $7.20 next year, the forward P/E drops to about 25.3. That gap between trailing and forward P/E reflects the market's implicit bet on earnings growth.
The Buyback Effect: When EPS Grows Without Business Growth
EPS can rise even when a business is standing still. Share buybacks reduce the denominator, which mechanically inflates EPS.
Apple is the most prominent example. Between 2013 and 2025, Apple reduced its share count from approximately 6.5 billion to under 4.3 billion through sustained buybacks. EPS grew faster than net income over that period. Some of that EPS growth is genuine business expansion; some is financial engineering. As an investor, you need to check both revenue and net income trends alongside EPS.
A quick sanity check: if EPS is growing at 15% but revenue is flat and margins are unchanged, the company is buying back stock rather than growing. That is not inherently bad, but it is different from organic earnings expansion.
Trailing vs Forward vs Normalized EPS
Three versions of EPS appear regularly. Knowing which to use in which context saves a lot of confusion.
Trailing EPS uses the last twelve months of actual reported earnings. It is real data, not a forecast. Use it when you want to know what a company has actually earned.
Forward EPS uses analyst consensus estimates for the next twelve months. It is a forecast. It can be wrong. Use it to understand what growth is already priced in.
Normalized EPS strips out one-time items: restructuring charges, asset write-offs, legal settlements. It attempts to show what the business earns in a "normal" year. We use normalized EPS in the DCF calculator as the starting point for long-term projections, because a single year of write-offs should not anchor your 10-year valuation.
EPS in the Context of Full Value Analysis
EPS is one data point, not the whole picture. Investors who focus on EPS alone miss three important dimensions.
First, cash conversion. A company can report positive EPS while consuming cash. Check free cash flow per share alongside EPS.
Second, capital intensity. High EPS with high capital expenditure requirements is less valuable than high EPS with low capex needs. This is why Apple's ROIC of 45.1% and Berkshire's 10.2% tell such different stories, even though both companies report rising EPS.
Third, debt. EPS does not account for balance sheet risk. A company can boost EPS by taking on debt to fund buybacks. Our VMCI Score weights the Value pillar at 35% and the Risk pillar at 8%, specifically to flag companies where EPS looks strong but use is climbing.
Further reading: Investopedia · CFA Institute
Why earnings per share formula Matters
This section anchors the discussion on earnings per share formula. The detailed treatment, formula, and worked examples appear in the body of this article above. The points below summarize the most important takeaways for value investors who want to apply earnings per share formula in real portfolio decisions. ValueMarkers exposes the underlying data on every covered ticker via the screener and stock profile pages, so the concepts in this article translate directly into actionable filters.
Key inputs for earnings per share formula
See the main discussion of earnings per share formula in the sections above for the full treatment, including the inputs, the calculation methodology, the typical sector benchmarks, and the most common pitfalls to avoid. The ValueMarkers screener lets value investors filter the full universe of 100,000+ stocks across 73 exchanges using earnings per share formula alongside the rest of the 120-indicator composite, with sector percentiles and historical trends shown on every stock profile.
Sector benchmarks for earnings per share formula
See the main discussion of earnings per share formula in the sections above for the full treatment, including the inputs, the calculation methodology, the typical sector benchmarks, and the most common pitfalls to avoid. The ValueMarkers screener lets value investors filter the full universe of 100,000+ stocks across 73 exchanges using earnings per share formula alongside the rest of the 120-indicator composite, with sector percentiles and historical trends shown on every stock profile.
Related ValueMarkers Resources
- Forward Pe — Glossary entry for Forward Pe
- Enterprise Value — Glossary entry for Enterprise Value
- Earnings Yield — Earnings Yield is the metric used to how cheaply a stock trades relative to its fundamentals
- Earnings Power Value — related ValueMarkers analysis
- Eps Growth Analysis — related ValueMarkers analysis
- How To Calculate Piotroski F Score Step By Step — related ValueMarkers analysis
Frequently Asked Questions
what happens if the stock market crashes
A stock market crash compresses EPS multiples immediately and often reduces forward EPS estimates as economic activity slows. If a company earned $5.00 per share at a P/E of 25, a crash might push the P/E down to 12-14, cutting the stock price in half even if EPS itself holds steady. Companies with strong balance sheets and high ROIC, like Apple with 45.1% ROIC and an Altman Z-Score of 8.2, historically recover EPS faster than leveraged peers after a downturn.
what time does the stock market open
U.S. stock markets open at 9:30 a.m. Eastern Time on weekdays. Pre-market trading on major platforms begins as early as 4:00 a.m. Eastern, though volume and liquidity outside regular hours are significantly lower. EPS announcements often land before the open or after the close specifically to let investors process the numbers before live trading begins.
are stock markets closed today
U.S. markets close on federal holidays including New Year's Day, Martin Luther King Jr. Day, Presidents Day, Good Friday, Memorial Day, Juneteenth, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. When in doubt, check the NYSE holiday schedule directly. Earnings per share reports scheduled for those days are typically rescheduled to the next trading session.
what time does the stock market close
The New York Stock Exchange and Nasdaq close at 4:00 p.m. Eastern Time on regular trading days. After-hours trading runs until 8:00 p.m. Eastern. EPS surprises announced after 4:00 p.m. often cause sharp after-hours price moves, which is why knowing the close time matters for investors tracking quarterly earnings.
what time does stock market open
The stock market opens at 9:30 a.m. Eastern Time. Extended hours pre-market trading typically starts at 4:00 a.m. Eastern on platforms like TD Ameritrade and Interactive Brokers. EPS releases during pre-market hours frequently set the direction for the regular session open, which is why earnings calendars and their expected times matter to active investors.
what is morningstar rating
The Morningstar star rating is a backward-looking performance rating that scores mutual funds and ETFs on 3, 5, and 10-year risk-adjusted returns relative to peers. One star is the bottom 10%, five stars is the top 10%. It is a fund screener tool, not a stock EPS analysis tool, so it has limited relevance when evaluating individual company earnings quality. For stock-level analysis, our VMCI Score provides a forward-looking multi-pillar assessment including earnings quality and EPS growth trajectory.
Start building your intrinsic value model with earnings per share as the foundation. Our DCF calculator takes your EPS estimate, growth rate, and discount rate and returns a range of fair value scenarios in under two minutes.
Written by Javier Sanz, Founder of ValueMarkers. Last updated April 2026.
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Disclaimer: This content is for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.