Earning per share (EPS) is the net profit of a company divided by the number of shares. We have to divide the net profit with the number of issued shares (outstanding shares not treasury stocks). The EPS of a company, which has 100 million dollars of net profit and 10 million out standing shares, will be 10 dollars. The higher EPS is, of course, better.
However, the temporarily high EPS is not that good. EPS is also required to be treated in a long-term point of view. We need to review EPS of the past 10 years and check whether it has been increasing continuously. Because these companies have enough room for operating their own business, it is more likely that they would use financial techniques such as purchasing treasury stocks, indicating that they have a potential to rise stock price over the long term.
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