This metric converts absolute profit into a value per share, allowing comparison of company results with its share price. It forms the basis of the P/E multiple.
In calculation, preferred share dividends are subtracted from net profit, and the divisor is the weighted average number of common shares for the period—accounting for new share issuance or buybacks during the year.
The metric is sensitive to changes in share count. Share buybacks increase earnings per share without increasing actual profit, while additional issuance decreases it. Stock splits change it proportionally, so historical data requires adjustment to avoid distorted dynamics.
It has the same limitation as net profit: inclusion of one-time items, exchange rate differences, and tax benefit effects. Metric reliability is verified by comparing with operating profit for the same periods—diverging trends indicate non-operating factors at play.