Earnings per share (EPS) is a financial metric that indicates the portion of a company's profit attributable to each outstanding share of common stock. This measure helps investors understand how well a company is performing on a per-share basis, which can be particularly useful when comparing the profitability of different companies or assessing the growth of a single company over time.
EPS is calculated by taking the net income of the company, subtracting any dividends paid on preferred shares, and dividing the result by the average number of outstanding shares. This calculation provides a clear picture of how much profit is generated for each share held, which is essential for evaluating the company's profitability and overall health from the shareholder's perspective.
The other options do not accurately represent what EPS indicates. Total revenue refers to all the money a company earns from its business activities and is not a measure of profit. Dividing total profit by total assets gives a return on assets ratio, which evaluates asset efficiency rather than share profitability. Finally, the number of shares owned by each shareholder indicates ownership but does not relate to profit distribution, which is essential to understanding EPS.