Earnings & EPS

Key term: EPS (earnings per share)

Revenue is only the starting point. Once a company subtracts everything it costs to run the business — materials, wages, rent, interest, taxes — what's left over is profit, more formally called earnings. Earnings are the number that actually belongs to the owners of the business.

Because companies have very different numbers of shares outstanding, raw earnings figures aren't easy to compare between companies. Earnings per share, or EPS, solves that by dividing total profit by the number of shares outstanding, showing how much profit each individual share is entitled to. It's usually measured on a trailing twelve month basis — the most recent full year of results — so it isn't skewed by one unusually strong or weak quarter.

Here's the detail worth sitting with: revenue can grow while earnings shrink at the very same time. A company can sell more than ever and still make less profit, if its costs are rising even faster than its sales — more competition forcing lower prices, or expenses that are growing out of control. That combination is a warning sign worth investigating, even when the top-line revenue story looks healthy.

Rising EPS over time is generally a healthy sign of a business getting more profitable per share; a shrinking or negative EPS is worth a closer look, especially alongside otherwise strong revenue growth.

In the daily game

Archived matchups sometimes reference EPS (TTM) in their research notes — a useful cross-check against Revenue Growth to see whether sales gains are actually reaching the bottom line.