I can’t quite wrap my head around why EPS is more significant in assessing profitability than net income. What can we derive from EPS that we cannot from Net Income? As an investor, profitability on a per share basis is telling me what?
Thank you.
This is a basic explanation but if there are many shares outstanding, your share of the pie is lower since EPS is lower. I think investors would rather have a higher share of net income than a lower one.
Can you elaborate more practically on “your share of the pie is lower”?
If Net Income is $1m, and shares outstanding is 1M, then EPS is $1. However, if Net Income is $1m and shares outstanding is 500,000, then EPS is $2. So you get a larger share of net income for each share you own if shares outstanding is lower. Looking at net income by itself does not tell you how much is income is attributable to each share, whereas EPS does.
And how do I benefit as an investor if I hold a stock that has EPS of 2 instead of a EPS of 1?
From an EPS of 2 you have the ability to earn more dividend income compare to an EPS of 1. does that make sense?
Ahh okay, perfect, thank you guys.