Earnings per share (EPS)

Basic earnings per share takes net profit, subtracts any dividends owed to preference shareholders, and divides the result by the weighted average number of ordinary shares in issue during the period. Diluted EPS goes further and assumes that share options, convertible bonds and similar instruments have been turned into shares, which spreads the profit over a larger share count and gives a lower, more cautious figure. Companies report both. Many also publish adjusted or underlying EPS, which excludes items management considers one-off, using definitions the company chooses.

EPS is the building block of the price-to-earnings ratio and a central figure in analysts' forecasts; share prices can move sharply when reported EPS differs from expectations. Growth in EPS over time is a rough gauge of how much more profit each share is earning. It can be flattered, however. Share buybacks raise EPS by shrinking the share count even when total profit is flat, and generous adjustments can make results look better than the statutory figures. Comparing adjusted EPS with the statutory number is a useful habit.