Why Do Investors Focus on EPS?
When reading financial reports of listed companies, Earnings per Share (EPS) is the most frequently mentioned key indicator. Simply put, EPS represents the amount of net profit allocated to each share of common stock, intuitively reflecting the company's profitability efficiency.
For investors, the level of EPS determines the company's value. If a company's EPS continues to grow, it means that investors can get more returns for every dollar invested, making such companies worth holding long-term. Conversely, companies with declining or volatile EPS should be evaluated cautiously. This is why both institutional investors and retail investors pay close attention to this metric—it is the cornerstone for assessing a company's profitability.
EPS Calculation Is Not as Complex as You Might Think
The formula for calculating EPS is straightforward:
EPS = (Net Profit - Preferred Dividends) ÷ Outstanding Shares