Earnings per share (EPS) is one of the most important financial metrics for share investors. It measures how much profit a company generates for each share on issue — essentially, how profitable the company is on a per-share basis. Rising EPS over time is a key driver of rising share prices.
How EPS Is Calculated
$$\text{EPS} = \frac{\text{Net profit after tax}}{\text{Number of shares on issue}}$$
Example:
- CBA net profit: $9.5 billion
- Shares on issue: 1.58 billion
- EPS = $9,500,000,000 ÷ 1,580,000,000 = $6.01 per share
Every $1 increase in EPS (assuming the market pays the same P/E multiple) results in a proportional increase in share price. This is why EPS growth is closely watched by investors and analysts.
Basic EPS vs Diluted EPS
Basic EPS — calculated using the current number of shares on issue.
Diluted EPS — calculated assuming all convertible securities (options, performance rights, convertible notes) have been exercised or converted into shares. This is a more conservative figure because it reflects the maximum number of shares that could exist.
For companies with large executive option schemes or convertible notes outstanding, diluted EPS can be significantly lower than basic EPS. Always check diluted EPS for a more accurate picture.
EPS Growth — Why It Matters
Share prices tend to follow EPS over the long run. A company that grows EPS at 15% per year for a decade will typically see its share price rise substantially, all else being equal.
Example — EPS growth and share price:
| Year | EPS | Share price (at 20× P/E) |
|---|---|---|
| Year 1 | $1.00 | $20 |
| Year 3 | $1.32 | $26.40 |
| Year 5 | $1.75 | $35 |
| Year 10 | $4.05 | $81 |
Assumes constant 15% EPS growth and constant 20× P/E. For illustration only — actual results vary significantly.
This compounding effect is why long-term investors focus heavily on EPS growth rather than short-term share price movements.
Reported vs Underlying EPS
Companies often report two versions of EPS:
Reported (statutory) EPS — includes all one-off items, write-downs, and restructuring charges as required by accounting standards.
Underlying (normalised) EPS — strips out non-recurring items to show the “core” business earnings. Management uses this figure to argue the business is performing better than the reported figure suggests.
Both are worth understanding:
- Underlying EPS can mask genuine problems if “one-off” charges keep occurring every year
- Reported EPS can understate business performance if a genuine one-off write-down occurs
Compare both figures and review the reconciliation between them in the company’s results announcements (available on the ASX website).
How EPS Relates to the P/E Ratio
P/E ratio = Share price ÷ EPS
If you know EPS and the market’s typical P/E for the sector, you can estimate a fair value range. However, this is a simplification — actual share prices incorporate future expectations, market sentiment, and macro factors that EPS alone cannot capture.
Where to Find EPS Data for ASX Stocks
- ASX announcements — companies release half-year and full-year results with EPS figures
- Broker platforms — CommSec, SelfWealth, and most brokers display historical EPS
- Financial data sites — Morningstar, Simply Wall Street, Macrotrends, Yahoo Finance
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Frequently Asked Questions
What is a good EPS for an ASX company? The absolute EPS number in isolation is not very meaningful — it depends entirely on the share price and number of shares on issue. A $0.50 EPS could be excellent for a $5 stock (P/E of 10×) or poor for a $100 stock (P/E of 200×). EPS is most useful when tracked over time (is it growing?) and when compared to the share price (through the P/E ratio) and to peers.
Does EPS include dividends? No. EPS measures total profit per share, not dividends. The dividend payout ratio tells you what portion of EPS is paid out as dividends. A company with EPS of $2.00 paying a $1.20 dividend has a 60% payout ratio — retaining 40% of earnings to reinvest in the business.
Can EPS be negative? Yes. If a company makes a net loss, EPS is negative. Loss-making companies cannot have a meaningful P/E ratio (you cannot divide by a negative number and get a useful result). For loss-making companies (many early-stage tech or biotech stocks), investors use other metrics such as revenue growth, cash runway, or price-to-sales.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.