What is EPS? Earnings per share explained: basic, diluted and TTM

Earnings per share is the profit a company made over a period, divided among its shares. It is the 'E' in the P/E ratio and the number most watched on earnings day: companies report it every quarter, analysts forecast it, and share prices often jump or slump when it beats or misses those forecasts.

Because it is expressed per share, EPS lets you follow a company's profitability over time from a shareholder's point of view. On its own, though, a figure like $2.50 says little — it needs to be compared with the share price, with past years and with expectations.

Profit attributable to ordinary shareholders, divided by the average number of shares in issue over the period:

Basic EPS   = (net profit − preferred dividends) ÷ weighted avg. shares
Diluted EPS = same profit ÷ (shares + potential new shares)
TTM EPS     = sum of the last four quarters' EPS

Diluted EPS adds the shares that would be created if employee options, warrants or convertible bonds were exercised, so it is never higher than basic EPS. Our stock pages use trailing-twelve-month (TTM) EPS for the trailing P/E; the forward EPS shown next to it is the analysts' consensus estimate.

A company earns a net profit of $500 million, pays no preferred dividends and had 250 million shares outstanding on average: EPS = 500 ÷ 250 = $2.00. Suppose profit is unchanged the next year, but the company has bought back 10% of its shares, leaving 225 million. EPS becomes 500 ÷ 225 ≈ $2.22 — up 11% without the business earning a cent more.

That is why investors look at what drives EPS growth: rising sales and margins are higher-quality growth than financial engineering. Comparing EPS growth with revenue growth and free cash flow is a quick sanity check.

EPS is an accounting number. One-off items — asset sales, write-downs, legal settlements — can swing it sharply, which is why companies also publish 'adjusted' EPS. Those adjustments are chosen by management and deserve scrutiny.

Changes in the share count break comparisons: after a 2-for-1 stock split, EPS halves even though nothing about the business changed, so always use split-adjusted history. And EPS says nothing about how much capital was needed to earn the profit — return on equity fills that gap.