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Earnings per share (EPS) measures the income earned by each share of common stock. For example, if Rolly Company has net income for the year of $1,000,000 and a weighted average of 100,000 common shares outstanding during the year, EPS is $10.00 ($1,000,000/100,000). EPS is widely used by analysts and investors to assess the profitability of firms, and changes in firm profitability, over time. EPS statistics are widely published in financial statements and frequently quoted in the financial press. As the result of a joint initiative of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) to increase the international comparability of accounting standards, EPS, as illustrated below, is calculated in much the same way throughout the world (see FASB Statement No. 128 and IASB Statement No. 33). EPS is a ratio of earnings available to common shareholders (after claims of preferred stockholders) divided by the weighted average number of shares of common stock outstanding for the period. Thus, EPS is only calculated for common stock. The EPS denominator uses shares outstanding on a weighted average basis for the year. EPS calculated in this way is called basic EPS. EPS calculations are more complex for firms that have significant amounts of outstanding convertible securities, warrants, options, or other agreements by which common shares ... log in or subscribe to read full text