What is the formula for Earnings Per Share (EPS)?

The formula for Earnings Per Share (EPS) is derived from the relationship between a company's net income and the number of shares outstanding. EPS measures how much profit is attributed to each share of stock, providing a useful metric for investors to gauge a company's profitability on a per-share basis.

The correct calculation involves dividing the net income of a company by the number of shares that are currently outstanding. This allows investors to see how much of the company's earnings are available to each share they own, making it an essential tool for investment analysis.

Using the wrong options would yield incorrectly calculated figures: multiplying net income by shares outstanding does not reflect the per share earnings; dividing shares outstanding by net income would produce a value that is not meaningful in assessing profitability; and adding net income to shares outstanding has no relevance in calculating earnings per share. Thus, the correct approach ensures that EPS accurately represents the income distributed to each share, which is crucial for effective financial performance evaluation.