Why Is Earnings per Share (EPS) Important to Investors? FAQs Why is Earnings per Share (EPS) important to investors in evaluating a company's profitability? EPS is a critical metric for investors as it provides a direct measure of a company's profitability. The higher the EPS, the more profitable the company is perceived to be, potentially making its stock more attractive to investors. Why is Earnings per Share (EPS) important to investors when comparing different companies? EPS serves as a useful comparative tool. It allows investors to measure and compare the profitability of different companies, enabling them to make more informed decisions when diversifying their portfolios. Why should investors consider other financial metrics along with Earnings per Share (EPS)? While EPS provides valuable insights into a company's profitability, it doesn't provide a complete picture of the company's financial health. Therefore, it's important for investors to consider other financial indicators, such as the Price/Earnings (P/E) ratio, Debt/Equity (D/E) ratio, and Return on Equity (ROE), along with EPS. Why is understanding the calculation of Earnings per Share (EPS) important to investors? Understanding how EPS is calculated helps investors evaluate a company's net income, dividends, and the number of outstanding shares – factors that can significantly influence EPS. Both basic and diluted EPS calculations should be understood for a comprehensive view of a company's financial health. Why should investors be aware of the limitations of Earnings per Share (EPS)? While EPS is an important measure of profitability, it has limitations, including an overemphasis on short-term profits, potential for manipulation, and failure to reflect cash flow or account for size bias. Therefore, it's essential for investors to understand these limitations when making investment decisions. About the Author True Tamplin, BSc, CEPF® Facebook Linkedin Instagram Twitter Youtube True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists. True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics. To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.