Basic EPS vs diluted EPS?

Diluted EPS includes all potential shares from stock options, convertible bonds, etc. It's always lower than or equal to basic EPS. Use diluted EPS for conservative valuation.

Is higher EPS always better?

Higher EPS growth is positive. But compare EPS growth rate with P/E ratio. A stock can have high EPS but be overvalued if P/E is too high.

EPS — Earnings Per Share Formula

EPS represents the portion of a company's profit allocated to each outstanding share. It's the foundation for valuation metrics like P/E ratio.

Earnings Per Share

Basic EPS = (Net Income - Preferred Dividends) / Weighted Average Shares Outstanding

Where:

NI = Net income (profit after tax)
PD = Preferred dividends
Shares = Weighted average common shares outstanding

Step-by-Step:

1
Find net income
From the income statement bottom line.
2
Subtract preferred dividends
If any preferred shares exist, deduct their dividends.
3
Divide by shares
Use weighted average shares outstanding during the period.

Worked Examples:

Company EPS

Net Income: ₹500 CrShares: 10 Cr shares

Result: EPS = ₹50

500 Cr / 10 Cr = ₹50 per share earnings.