Earnings Per Share
Earnings per share is net income attributable to common, divided by weighted-average shares — basic or diluted.
Definition
Basic EPS uses shares outstanding. Diluted EPS adds in-the-money options, convertibles, and other potential shares. Buybacks shrink the denominator; stock comp and converts grow it. Non-GAAP EPS is a separate conversation.
Why it matters
P/E and many compensation plans are EPS objects. Management can lift EPS with leverage and buybacks without lifting enterprise value.
Case
A firm issues cheap debt to repurchase stock. EPS rises, P/E compresses a bit, EV/EBIT is unchanged. The ‘earnings beat’ was a capital-structure trade.
How to read it
Always pair EPS with share count, dilution, and net debt. Diluted and cash EPS matter more than the headline basic number.
Key papers
Landmark references with real publisher or arXiv links — not token-overlap noise.
- SFAS 128 Earnings per ShareFASB · 1997 · FASBBasic vs diluted EPS rules.