Earnings per Share

Earnings per share relates the net income attributable to the parent's ordinary shareholders to the weighted average number of ordinary shares outstanding. It answers the question how much profit is attributable to a single share and is the reference measure for the price-earnings ratio. Its calculation is governed by IAS 33, which requires listed companies to disclose both a basic and a diluted figure. The diluted figure includes potential additional shares only where they reduce earnings per share or increase loss per share. Convertible debt also requires an adjustment for the after-tax interest expense that would cease.

Treasury shares, which do not count, and capital measures during the year, which enter through the weighting, must also be taken into account. The measure is sensitive to actions that leave profit untouched: with positive earnings held constant, a share buyback increases the figure by reducing the share count. Conversely, a capital increase lowers it at unchanged earnings even though funds have flowed into the company. It should be distinguished from net income, which has its own entry in this glossary and measures absolute earnings, whereas the focus here is on the allocation across shares. For comparisons between companies it is therefore of limited use, because capital structure, share count and tax rate all feed into it.

In the unlisted German mid-market it plays practically no role, because no shares are traded there and valuations rest on multiples of EBITDA. An example illustrates the calculation: net income of 40 million euros across 20 million shares gives 2.00 euros per share. Including 2 million additional shares at unchanged earnings reduces the diluted figure to around 1.82 euros. For analysis the development over several years matters more than any single figure, because buybacks and capital measures can distort individual years.