Earnings Per Share, or EPS, is calculated by dividing profit available for distribution to common equity shareholders by number of equity shares outstanding. In other words, EPS shows how much profit per share has been generated by a company.
Formula : (Net Income) / (Average outstanding shares)
Let see this by example:
Calculating EPS for Hindustan Unilever.
Division
Also, we can differentiate diluted EPS as below.
Basic EPS is calculated, taking into account the outstanding equity shares of the company.
Diluted EPS includes convertible shares such as employee stock options, warrants, debt in its calculation.
Diluted EPS is calculated after adding convertible instruments into number of existing shares. The convertible instruments are those instruments which will get converted into equity shares on a later date.
EPS also helps in arriving at a company’s Price to Earnings (P/E) ratio.
Image/Data Source : https://www.nseindia.com/get-quotes/equity?symbol=HINDUNILVR
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