Key Terms
Earnings per share
A company's profit divided by the number of shares in issue, giving the slice of profit attributable to each share.
By the Investfora Research Desk
Earnings per share is a company's profit divided by the number of shares in issue: the slice of profit attributable, on paper, to each single share. It is a per-share measure rather than a whole-company one, which gives it two moving parts. It changes when profit changes — but it also changes when the share count changes. Issuing new shares spreads the same profit across more slices and lowers the figure; buying shares back concentrates it into fewer slices and raises it.
A worked example
A hypothetical company earns a profit of 10 million pounds and has 20 million shares in issue, so earnings per share are 10 million pounds divided by 20 million, or 50 pence. Suppose the company then buys back 4 million shares, leaving 16 million, while profit stays exactly the same. Earnings per share become 10 million pounds divided by 16 million, or 62.5 pence — a rise of a quarter with no growth in profit at all.
Because of that second moving part, earnings per share alone does not say whether the business improved. The figure can climb purely because the divisor shrank, and it says nothing about the cash, if any, actually paid out to shareholders.