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What is meant by Earning Per share (EPS) and its types ?

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A company's earning is the net profit of a company after taxes and interest. Earning per share is the part of company's profit which is allocated to equity share holders after all external share holders have been paid.It is a very important financial measure. Before investing in shares of any company it is important to carefully analyze its earnings. This will help in understanding companies future growth and its ability to pay dividend to its shareholders.Traders and investors have different goals to meet for which they trade in market.To trade in a secure and wise manner without risking your capital such analysis is helpful. The shares of company in which you trade are added in your demat account and removed when you sell them.

EPS is considered to be a most important factor while determining share price and price to earning valuation ratio.Calculating it is a simple process and also available on financial report of the company.The formula which is used for calculation is :

EPS= (Net income – dividend on preferred share)/Average of outstanding shares

There are five types of earning per share which are discussed below :

  • GAAP EPS

GAAP eps is also known as reported eps.It is calculated on the basis of Generally Accepted Accounting Principles(GAAP). EPS is a very important part of company's financial statements and are submitted by the regulatory authorities.

  • Headline EPS

As its name suggests it is earning per share that is reported by company itself in its press release.This data is available on different business channels. Headline EPS can be the pro forma EPS or the one calculated by some analyst who is analyzing that company.


  • On going EPS

It is calculated on the basis of on going or net income of the company and excludes all unusual events which are not performed by the company very frequently.The aim here is to find
the earnings from core operations of company and predict future EPS.

  • Pro forma EPS

The word pro forma indicates there are some assumptions made while deriving number which is being discussed. A pro forma EPS means that the company has made some assumptions related to its accounting items, expenses and acquisition while calculating its EPS.


  • Cash EPS

It is derived by dividing operating cash flow(not EBITDA) by number of outstanding shares. This type of eps gives a better understanding of financial status of a company as manipulating operating cash flow figures is difficult.



Its a common saying “Buy and hold company which is showing earnings growth”. Although EPS is helpful in comparing profitability of different companies but we need to be aware of the fact that every sector has different growth. Comparing eps of two companies from same sector does not tells the quality of stock or when is the right time to buy it.Investors and traders can improve their returns by making a good choice of stocks after analyzing them carefully.Services of discount brokers can be used to save huge amount of brokerage charges.
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