What is earnings per share

Publicly owned companies must report earnings per share (EPS) underneath the net income line in their income statements. This is mandated by generally accepted accounting practices (GAAP). The EPS gives investors a method of determining the amount the business earned on its stock share investments. In other words, EPS tells investors the amount of net income the business earned for each stock share they own. It's calculated by dividing net income by the final amount of capital stock share. It's important to the stockholders who want the money of the business to be communicated to them on a per share basis so they can compare it with the selling price of their shares. 

Private businesses don t need report EPS because stockholders focus more about the business's total net income. 

Publicly-held companies actually report two EPS figures, unless they have what's known as an easy to use capital structure. Most publicly-held companies though, have complex capital structures and possess to report two EPS figures. One is spoke to the basic EPS; the other is named diluted EPS. Basic EPS is based on which is stock shares that are outstanding. Diluted earnings are based on shares that are outstanding and shares that may be issued in the future in the form of commodity.

Obviously this is a complicated process. An accountant has to adjust the EPS formula for any number of occurrences or changes in the business. A business might issue additional stock shares throughout the entire year and buy back some of its own shares. Or it might issue several classes of stock, which will cause net income to be divided into 2 or more pools - one pool for each class of stock. A merger, acquisition or divestiture may even impact the formula for EPS.