Basic Earnings Per Share (EPS)
Definition of 'Basic Earnings Per Share (EPS)'
EPS is an important metric for investors because it tells them how much profit a company is generating per share of stock. A high EPS indicates that a company is profitable and is likely to continue to be profitable in the future. A low EPS indicates that a company is not profitable and may be struggling.
EPS can be used to compare companies within the same industry. A company with a higher EPS than its competitors is likely to be more profitable and a better investment.
EPS can also be used to track a company's performance over time. A company with a rising EPS is likely to be growing and improving its profitability. A company with a falling EPS is likely to be struggling and may be in danger of going out of business.
There are two types of EPS: basic EPS and diluted EPS. Basic EPS is calculated using a company's outstanding shares. Diluted EPS is calculated using a company's outstanding shares plus the number of shares that would be issued if all of its outstanding options and warrants were exercised.
Diluted EPS is a more accurate measure of a company's profitability because it takes into account the potential dilution of earnings that could occur if a company's options and warrants were exercised.
EPS is a valuable metric for investors, but it should be used in conjunction with other financial metrics to get a complete picture of a company's financial health.
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