Basic Earnings Per Share (EPS)

Basic Earnings Per Share (EPS) is a commonly used way to show how much profit a company makes for each share of its common stock. You’ll find this figure listed on most companies’ income statements. Calculating Basic EPS involves subtracting any dividends paid to preferred shareholders from the company’s net income, and then dividing that result by the weighted average number of common shares outstanding during the reporting period:

Basic EPS = (Net Income – Preferred Dividends) ÷ Weighted Average Outstanding Shares

Using a weighted average helps capture changes in the share count over time—like when a company issues or buys back stock—making the calculation more accurate. Investors and analysts use EPS to gauge profitability and to calculate valuation metrics such as the Price-to-Earnings (P/E) ratio.

Keep in mind, Basic EPS is most useful when a company is primarily financed by common stock. If the company has issued other types of equity or debt, or has complex financing, Basic EPS may not fully reflect the impact of those factors on shareholder value. In those cases, diluted EPS may be a more appropriate measure.