Earnings per share (EPS)

What it means

Net income available to common shareholders, divided by the weighted average shares outstanding.

The exam angle

Diluted EPS assumes every in-the-money convertible, option and warrant converts. It is the conservative figure and the one that gets compared.

Where it appears in the syllabus

• EquitiesCFA Level I · exam weight 11–14% · Market organisation, indexes, industry analysis, dividend models.
• Financial Statement AnalysisCFA Level I · exam weight 11–14% · The three statements, inventories, long-lived assets, quality of earnings.

Related terms

• Book valueThe accounting value of equity: assets less liabilities as reported.
• EBITDAEarnings before interest, tax, depreciation and amortisation — a rough proxy for operating cash generation.
• Free cash flowCash available after the investment needed to maintain the business.
• Return on equityNet income as a percentage of average shareholders’ equity.
• BetaThe sensitivity of an asset’s return to the market’s return — its share of systematic risk.
• Capital asset pricing modelA model stating that an asset’s expected return equals the risk-free rate plus beta times the equity risk premium.