Earnings Per Share (EPS) is the portion of a company’s net profit attributable to each share over a specified period. It is calculated by dividing net income attributable to shareholders by the weighted average number of the company’s shares outstanding. EPS is one of the key financial indicators used to measure a company’s ability to generate profits and compare its operating performance across periods.

Simply put: Imagine a group of people who jointly own a restaurant, with each person holding a certain number of shares. At the end of the year, the net profit is totaled and divided by the total number of shares, so each person can see how much profit each share earned. That is exactly what EPS measures: how much of the company’s total profit each share you own represents.

Note: A higher EPS does not necessarily mean the company’s operating performance has improved. The figure may rise because of one-off gains (such as the sale of an asset) or because the number of shares has fallen (if the company buys back some of its shares). EPS comparisons between different companies may also be inaccurate or meaningless unless you take the share price and the nature of the sector into account.

Example: Suppose a company earns a net profit of SAR 200 million in one year and has 100 million shares. Its EPS is (200 ÷ 100) = SAR 2. If its profit rises to SAR 250 million the following year but it issues new shares, bringing the total number of shares to 125 million, its EPS will remain SAR 2 (250 ÷ 125), despite the increase in the company’s total profit.

What does this mean for you as an investor?

  • Measuring a company’s earnings growth: EPS helps you determine whether a company is generating more profit per share over time, which can reflect management’s effectiveness.
  • Valuing a share: EPS is used to calculate the “price-to-earnings ratio” (share price ÷ EPS), which helps you assess whether a share’s market price is high, low, or fair relative to its earnings.
  • Tracking the impact of capital decisions: Issuing new shares may reduce EPS because profits are spread across more shares, while a share buyback may increase it by reducing the number of outstanding shares that share in the profits.

Frequently asked question: Is EPS the amount of cash I will receive as a shareholder?

Answer: Not necessarily. EPS represents each share’s “portion” of the company’s profit on paper. The amount that actually reaches a shareholder’s bank account is the “cash dividend” the company decides to pay. A company may distribute only part of its profits or retain them all as retained earnings to reinvest in paying down debt or expanding its business.