Every quarter and year, companies report their earnings. These reports help investors to analyze a company by reviewing its financials.

But it’s not just for analysis - investors pay attention to earnings because it directly applies to their investment.

How? By investing in a company, you are a part owner in that company. 

As a shareholder, you are entitled to a certain amount of a company’s earnings, depending on the number of shares you own.

This is called earnings per share (EPS) - and if you want to understand what you're actually paying for when you buy a stock, you need to know the earnings per share formula.

That’s because the EPS formula shows investors how much of a company’s earnings they own, but it’s also a formula used in several valuation metrics.

Let's break down what EPS is, the formula, and how to use it.

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What Is Earnings Per Share?

Earnings per share (EPS) tells you how much profit a company generates for each share of its stock.

If a company earns $1 billion in profit and has 500 million shares outstanding, each share represents $2 in earnings. 

That's your EPS.

Higher EPS = more profit per share. 

But context matters - a $5 EPS at one company might be great while the same number is mediocre at another.

The Earnings Per Share Formula

Here's the formula:

EPS = Net Income ÷ Total Shares Outstanding

That’s it - it really is that simple.

But where do you find net income and total shares outstanding?

Some financial website like CNBC or Yahoo! Finance may have this information available.

However, if you truly want to learn how to find it yourself, you’ll need to dig a little deeper into a 10-K or 10-Q financial statement.

What are those? These are required financial documents companies must release, legally. They’re often called earnings reports.

But they’re not the same:

10-K: An annual audited report of a company’s financials during a specific time period.

10-Q: A quarterly, unaudited report of a company’s financials during a specific period.

This matters because depending on the report you like at, you may get a different EPS number.

Let’s break down step-by-step on how to find the info you need to calculate EPS next.

How to Calculate EPS: Step-by-Step

Let's use Coca-Cola as an example. Note: All data as of Q2 2025.

Step 1: Get the Net Income

Find this on the income statement in the company's 10-K annual report.

Coca-Cola's net income: $10.6 billion

Step 2: Find Shares Outstanding

Look in the 10-K for "shares outstanding" or "common stock outstanding."

Coca-Cola has 4.36 billion shares outstanding.

Step 3: Do the Math

EPS = $10.6 billion ÷ 4.36 billion shares = $2.43 per share

For every share of Coca-Cola stock, the company earned $2.43 in profit.

Basic vs. Diluted EPS

Companies report two EPS numbers:

Basic EPS uses current shares outstanding.

Diluted EPS accounts for potential future shares from stock options and convertible securities.

Many analysts prefer using the diluted EPS.

Why? It's more conservative, widely used, and takes into account more shares than just basic alone.

Example: Nvidia lists diluted EPS of $2.49 right on their income statement. You don't even need to calculate it yourself.

But, now you know how to!

How to Use EPS: The P/E Ratio

EPS by itself doesn't tell you if a stock is cheap or expensive. You need to use it with the P/E ratio or another stock valuation metric.

P/E Ratio = Stock Price ÷ EPS

Let’s use Disney as an example this time.

Note: All numbers are from Q2 2025.

• Stock price: $110.
• EPS: $2.75.
• P/E ratio: $110 ÷ $2.75 = 40.

This means investors pay $40 for every $1 of profit Disney earns. Is that a good deal? You'd compare it to Disney's competitors and historical averages.

Why EPS Matters

Compare Companies

EPS lets you compare profitability across companies in the same industry. If Company A has an EPS of $5 and Company B has $2, Company A generates more profit per share.

Track Growth

A company that goes from $1 EPS to $3 EPS over three years could be scaling fast. One that drops from $5 to $2 might be struggling.

Calculate Valuations

Every major valuation metric uses EPS. The P/E ratio, PEG ratio, and earnings yield all start with this number.

Where to Find EPS

Most financial websites list EPS for you:

• Yahoo Finance.
• Google Finance.
• MarketWatch.

You can also find it on the income statement in a company's 10-K. Look for "net income per share" or "diluted EPS."

Common Mistakes to Avoid When Using The Earnings Per Share Formula

Using basic instead of diluted: Diluted EPS is typically more accurate for valuations.

Ignoring context: Compare EPS to competitors in the same industry. 

Tech companies have different EPS ranges than utilities, so if you try to compare across industries, it won’t do you much good.

Forgetting growth rates: A company with 30% EPS growth may deserve a higher valuation than one with 5% growth.

Earnings Per Share Formula: The Bottom Line

The earnings per share formula is simple: Net Income ÷ Total Shares Outstanding.

You'll find net income on the income statement and shares outstanding in the 10-K. Do the math, and you've got your EPS.

Use it to calculate P/E ratios, compare companies, and understand what you're paying for when you buy a stock. 

Practice makes perfect - so go find the info yourself and try it out.

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