Net profit divided by the number of shares outstanding — the portion of a company's profit attributable to each share, the denominator in the P/E ratio.
Deeper Explanation
EPS is widely reported but requires careful interpretation. Reported EPS includes non-cash and one-time items that distort the underlying earning power. Graham preferred to use normalised EPS averaged over seven to ten years to remove cyclical and accounting noise. Share buybacks mechanically increase EPS by reducing the denominator (shares outstanding) without improving the underlying business — making EPS growth a less reliable signal of value creation than ROIC or free cash flow growth. Diluted EPS (including the effect of options and convertibles) is always more conservative and more meaningful than basic EPS for valuation purposes.
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