Earnings per share or EPS definition

What does Earnings per share or EPS mean?

EPS is calculated by dividing the net profits attributable to ordinary shareholders by the weighted average number of ordinary shares in issue, in accordance with International Accounting Standard 33 (IAS 33), which requires UK listed companies that are holding companies to report on and calculate figures for EPS, and Financial Reporting Standard 22, which was introduced to converge with the provisions of IAS 33, for companies not required to report in accordance with International Accounting Standards. EPS is a significant concept in connection with a share buyback. Where a buyback enhances EPS, this will improve the company's P/E ratio (ie, the profits attributable to each equity share), which is calculated by dividing a company's share price by its EPS. The P/E ratio will be lower and, all other factors remaining constant, this should lead to an increase in the company's share price.

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