Earnings per Share (EPS)

Definition:

Earnings per Share (EPS) is a key metric in corporate valuation that measures the profit attributable to each individual share of a company. It is calculated by dividing a company's net income by the total number of outstanding shares.

Formula:
EPS = Net Income / Number of Outstanding Shares

Significance:

EPS serves as an indicator of a company's profitability and allows investors to compare the financial performance of different companies. A higher EPS generally signals stronger earning power.

Practical Application:

In the M&A context, EPS plays a critical role in evaluating transactions. Companies analyze whether an acquisition will have accretive or dilutive effects on EPS. This metric is also used to assess Shareholder Value and guide strategic decisions.