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What Is EPS?

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Earnings-per-share, or "EPS", is one of the most widely used ways to gauge company profitability. To calculate, divide the company’s profits by the number of outstanding shares.

EPS matters because strong earnings tend to drive the price-per-share up, and that’s good for investors. Earnings also generate money the company can re-invest in growth.

But, EPS has limitations.

If a company uses earnings to buy back shares of its own stock, there are fewer outstanding shares in the equation. That drives the EPS up, without any actual increase in earnings.

EPS also doesn’t consider outstanding debt, OR, that two companies might have the same EPS, but one company used less capital to generate the same profits—indicating it might operate more efficiently.

So, while EPS is a fundamental factor in assessing stock value, it’s most useful when considered along with other metrics.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Investing involves risk including loss of principal.

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