The earnings per share ratio shows the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company’s profitability.
The higher the earnings per share the better a company is doing for the shareholders. An increase in EPS year over year is typically a sign of a growth or a mature company. Some companies buy back shares to improve earnings per share without necessarily increasing net income. It is therefore important to not only look at EPS in isolation but to compare EPS to the total number of shares outstanding.
Formula for Dividend Yield / Current Yield
\(EPS = \frac{{Net\,income – Dividend\;on\;preferred\;shares}}{{Average\,outstanding\;shares}}\)
Example
Let’s assume, Infosys had net income in the amount of Rs.9,45,275 and total number of outstanding shares of 1,00,000. This gives earnings per share of Rs.9.45, which means that the company generates a net income of Rs.9.45 for each outstanding share.