About the EPS Calculator
Net income alone doesn't tell you much about what a company earned per share you actually own. Earnings per share (EPS) fixes that by spreading profit across the shares outstanding. Our EPS Calculator computes basic EPS from net income, preferred dividends, and weighted average shares outstanding.
How It Works
The calculator first subtracts any preferred dividends from net income, since that income belongs to preferred shareholders and isn't available to common shareholders. It then divides the remaining income by the weighted average number of common shares outstanding to produce EPS.
Formula & Methodology
Preferred dividends are subtracted first because preferred shareholders have a priority claim on earnings ahead of common shareholders, so that portion of net income was never really available to be divided among common shares in the first place. What's left, called income available to common shareholders, gets spread evenly across the weighted average share count, which accounts for shares issued or bought back partway through the period rather than just using the year-end count.
Examples
No preferred stock
A company with $5,000,000 in net income, no preferred dividends, and 1,000,000 weighted average shares outstanding has an EPS of $5.00 per share.
With preferred dividends
The same company paying $500,000 in preferred dividends first would have only $4,500,000 available to common shareholders, dropping EPS to $4.50 per share.
Feeding into P/E
If shares of that company trade at $75 each, the $5.00 EPS implies a P/E ratio of 15, a number investors use to judge whether the stock is cheap or expensive relative to its earnings.
Advantages
- Converts total company profit into a per-share figure investors can actually compare to share price
- Correctly excludes preferred dividends that aren't available to common shareholders
- Forms the basis for widely used ratios like the P/E ratio
- Fast to compute from figures already reported on a company's income statement
Common Mistakes
- Comparing basic EPS across companies without checking whether one reports diluted EPS instead
- Forgetting to subtract preferred dividends, which overstates income available to common shareholders
- Using year-end shares outstanding instead of the weighted average, which skews EPS after a mid-year share issuance or buyback
- Treating EPS growth alone as proof of a healthy business without checking whether it came from buybacks rather than real earnings growth
Edge Cases to Watch For
- This calculator produces basic EPS only; diluted EPS, which factors in stock options, warrants and convertible securities, is typically lower and is the more conservative figure most analysts reference.
- If shares outstanding is zero or blank, the calculator shows a dash rather than a divide-by-zero error.
- A net loss produces negative EPS, which the calculator will display as a negative currency figure.
- Companies with no preferred stock can leave that field at zero, in which case EPS is simply net income divided by shares outstanding.
Common Use Cases
- Evaluating a company's profitability on a per-share basis before investing
- Feeding into P/E ratio and other valuation calculations
- Tracking EPS growth or decline across reporting periods
- Comparing profitability per share across companies of different sizes