Earnings per share calculation example, step by step

Earnings per share, or EPS, shows the profit available to common shareholders on a per-share basis. Calculate basic EPS by subtracting preferred dividends from net income, then dividing by common shares, usually the weighted-average number outstanding when the share count changed during the period.

Earnings per share calculation example

The basic formula is:

Basic EPS = (net income − preferred dividends) ÷ weighted-average common shares outstanding

Net income is the company’s profit for the period. Preferred dividends are deducted because EPS measures earnings available to common shareholders. Common shares outstanding are the shares used to divide that amount.

Worked example: basic EPS

Assume a company reports these quarterly figures:

• Net income: $1,000,000
• Preferred dividends: $250,000
• Common shares outstanding: 11,000,000

Step 1: Find income available to common shareholders.

$1,000,000 − $250,000 = $750,000

Step 2: Divide by common shares.

$750,000 ÷ 11,000,000 = $0.06818 per share

Step 3: Round for presentation.

Basic EPS is about $0.07 per share.

If the company has no preferred dividends, the preferred-dividend deduction is zero.

Choose the right share count before dividing

When common shares changed during the quarter or year, weighted-average shares give a more accurate denominator than a period-end share count. Calculate them by multiplying each share balance by the fraction of the reporting period it was outstanding, then adding the results.

For a six-month period, suppose a company had 8 million shares for the first three months and 12 million for the final three months:

• 8,000,000 × 3/6 = 4,000,000 weighted shares
• 12,000,000 × 3/6 = 6,000,000 weighted shares
• Total weighted-average shares = 10,000,000

If income available to common shareholders was $750,000, EPS would be $750,000 ÷ 10,000,000, or $0.075 per share.

Stock splits and stock dividends must also be reflected in the weighted-average-share calculation. Buybacks generally reduce shares outstanding and can increase EPS if profit is unchanged. New share issuance generally increases the share count and can reduce EPS.

Basic EPS versus diluted EPS

Basic EPS uses current common shares. Diluted EPS also considers potential common shares from instruments such as employee options, warrants and convertible debt when they dilute the per-share result. A larger share count can make diluted EPS lower than basic EPS.

Consider a company with $12 million in net profit, $2 million in preferred dividends and 5 million common shares:

Basic EPS = ($12,000,000 − $2,000,000) ÷ 5,000,000 = $2.00

Assume 1 million option shares and 1 million shares from convertible debt could be added:

Illustrated diluted EPS = ($12,000,000 − $2,000,000) ÷ (5,000,000 + 1,000,000 + 1,000,000) = about $1.43

The basic figure uses current shares. The diluted figure reflects the example’s potential added shares. Companies with multiple share classes, participating securities or other complex arrangements can face more detailed EPS-reporting rules.

How to read an EPS figure

EPS is most useful in context. Compare it with a company’s earlier periods and with companies in the same industry, alongside the share price and other financial measures. A rising EPS can reflect higher profit, fewer shares, or both.

Also distinguish GAAP EPS from adjusted or non-GAAP EPS in earnings releases. For SEC registrants, non-GAAP per-share measures generally must be meaningful, reconciled to GAAP EPS and not presented more prominently than the GAAP measure.

Frequently asked questions

Why are preferred dividends subtracted from EPS?

EPS measures income available to common shareholders. Preferred dividends reduce the earnings available to common holders. If there are no preferred dividends, there is no deduction for this item.

How do you calculate weighted-average shares outstanding for EPS?

Multiply each number of shares outstanding by the fraction of the reporting period for which that balance was outstanding, then add the results. This prevents shares issued late in a period from being treated as outstanding for the entire period.

What is the difference between basic EPS and diluted EPS?

Basic EPS uses current common shares. Diluted EPS also considers potential common shares from instruments such as options, warrants and convertible securities when they dilute the per-share result, so it can be lower than basic EPS.

Can a stock buyback affect EPS?

Yes. A buyback generally reduces common shares outstanding and can increase EPS if earnings do not change. New share issuance and stock splits generally increase the share count and can reduce EPS.

Sources

• Earnings Per Share (EPS): What It Means and How to ... — www.investopedia.com
• Earnings Per Share Formula (EPS) — corporatefinanceinstitute.com
• What is Earnings Per Share (EPS)? Calculation & Limitation — www.td.com
• On the Radar — Earnings per Share (October 2025) — dart.deloitte.com