Earnings per share (EPS) is a key measure of a company’s profitability. It is calculated as net income divided by the total number of outstanding shares of common stock. The EPS number demonstrates how much profit each outstanding share of common stock generated in a given time period. A higher EPS number is associated with greater profitability.

There are two types of EPS metrics—basic EPS and diluted EPS. Both measures of EPS appear on a company’s income statement. For a publicly traded company, both EPS values will be publicly available in the company’s filings with the Securities and Exchange Commission (SEC).

Basic EPS does not take into account the dilutive effect of securities convertible or exercisable into common stock, such as stock options, restricted stock units, and warrants.

Diluted EPS provides a clearer picture of the actual economic ownership per share. It includes all potentially dilutive securities in the denominator of the EPS calculation. As a result, analysts tend to place more weight on the diluted EPS value of a company.

To the extent a company has paid out preferred dividends in the current period, that amount should be subtracted from net income in the numerator. This is because the EPS number is supposed to measures earnings generated relative to the common stock outstanding. Dividends issued to preferred stockholders are not available to common stockholders, and therefore the effects of preferred dividends should be excluded from the EPS calculation.

Analysts may look at a company’s EPS growth over recent periods in order to gauge how quickly a company can boost its earnings on a per share basis. It depends on a company’s particular size, industry and other special circumstances, but a company with EPS growth of at least 20% is generally viewed positively.

Some companies may provide an Adjusted EPS value, which subtracts certain one-time costs from the diluted EPS number. Adjusted EPS is a non-GAAP financial measure, meaning the measure is not prepared in accordance with Generally Accepted Accounting Principles (GAAP). Common examples of non-recurring items that might be subtracted to arrive at the Adjusted EPS value include amortization of intangible assets, impairment losses on tangible assets, equity-based compensation, and tax expenses.

For example, the pet retailer company Petco in its second quarter earnings release for 2024 provides a non-GAAP reconciliation table showing the non-ordinary course items subtracted from the Diluted EPS number to arrive at the Adjusted Diluted EPS number. Petco removed the effects of income tax, goodwill impairment, asset impairments and write-offs, equity-based compensation, restructuring costs, and restructuring-related severance costs. The earnings release includes a statement that Petco believes Adjusted EPS provides investors a view of what management considers a core earnings performance metric.

The book value per share (BVPS) measures the amount of equity that belongs to the common stockholders of the company. It is calculated as the total common equity available to common stockholders divided by the total number of outstanding shares.

Cash EPS is a non-GAAP measure that may be used in certain circumstances to better illustrate a company’s operating and financial profitability. It is calculated by dividing the company’s operating cash flow by the diluted shares outstanding.