What does earnings per share (EPS) measure?

Earnings per share (EPS) is a financial metric that assesses the profitability of a company on a per-share basis. Specifically, it indicates how much profit is attributable to each outstanding share of common stock. This measurement is calculated by dividing the company's net income (minus dividends on preferred stock) by the weighted average number of shares outstanding during a specific period.

By focusing on EPS, investors can understand the profitability of a company in relation to their investment in its stock. A higher EPS suggests a more profitable company, which can be attractive to potential investors. This is particularly important in evaluating a company's performance over time or in comparison to other companies in the same industry.

The other options provided do not accurately define EPS: the first option regarding stock price increase pertains to market performance rather than earnings; the third option relates to total revenue, which does not account for expenses or net income; and the fourth option involves a balance sheet ratio that analyzes financial leverage rather than earnings per share. These clarifications help to reinforce why the correct answer focuses specifically on profit allocation per share.