The Law Dictionary

Featuring Black’s Law Dictionary Free Online Legal Dictionary 2nd Ed.

What is EARNINGS PER SHARE (EPS)

The amount of net income earned by a company, after PREFERRED STOCK DIVIDENDS have been distributed, which is attributable to each outstanding share of COMMON STOCK. The EPS measure is used as a reflection of earnings power and corporate value; it is typically calculated on a FULLY DILUTED BASIS, which assumes that all outstanding stock OPTIONS are exercised, and any outstanding CONVERTIBLE BONDS are exchanged into new shares. The general computation is given as: where Nl is net aftertax income, Divpref is preferred stock dividends, and CS0/s is the weighted average common stock shares outstanding (including those associated with options and convertible bonds for a fullydiluted calculation).

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