History
In 1934 Benjamin Graham and David Dodd's Security Analysis taught investors to weigh price against earnings, making per-share profit a cornerstone of analysis. As convertibles and stock options spread, the US required separate basic and diluted EPS under SFAS 128 in 1997, and IAS 33 set the same rule internationally in 2003.
Calculation and use
A company earning 100 billion won with 100 million weighted average shares has EPS of 1,000 won. Price divided by EPS gives the P/E ratio, and steadily rising EPS signals growing earning power. Diluted EPS assumes all options and convertibles become shares, so it is usually lower.
Watch for distortions
Buybacks raise EPS by shrinking the share count even when profit is flat, and one-off gains such as asset sales inflate it. A rights offering dilutes it. Read EPS alongside ROE and free cash flow.
FAQ
- Does high EPS mean a good stock?
- Trend and price relative to EPS (P/E) matter more than the absolute figure.
- Basic or diluted EPS?
- Diluted EPS is the more conservative and commonly used measure.
Sources reviewed: 2026-10-26
References
- CFA Institute. (2020). Financial Reporting and Analysis. CFA Program Curriculum Level I.
- IASB. (2003). IAS 33 Earnings per Share. IFRS Foundation.
- Graham, B., & Dodd, D. (1934). Security Analysis. McGraw-Hill.