What is EPS? 2025 Guide for Australian Investors

Earnings Per Share (EPS) is one of the most-watched numbers in the Australian share market, but how much do you really know about it? In 2025, with reporting season in full swing and new accounting standards on the table, understanding EPS is more vital than ever. Whether you’re a DIY share trader or a long-term investor, EPS can reveal how well a company turns its profits into value for shareholders – or where the warning signs might be hiding.

What is EPS and Why Does it Matter?

EPS stands for Earnings Per Share. It’s calculated by dividing a company’s net profit (after tax and preference dividends) by the number of ordinary shares on issue. In simple terms, it tells you how much profit each share would get if all profits were paid out to shareholders.

• Formula: EPS = (Net Profit – Preference Dividends) / Weighted Average Shares Outstanding

• Key use: It’s a quick way to compare profitability between companies, regardless of size.

• Common mistake: EPS alone doesn’t show growth potential, debt, or cash flow health.

For example, if Woolworths posts a net profit of $1.6 billion and has 1.3 billion shares on issue, its EPS is $1.23. Compare this with Coles, and you’ve got a powerful snapshot for your next investment decision.

2025 Policy Updates: What’s New for EPS in Australia?

This year, the Australian Accounting Standards Board (AASB) has updated guidance on how companies should report EPS, aligning with the latest IFRS standards. Here’s what’s changed:

• Greater transparency: Companies must clearly separate out ‘basic’ and ‘diluted’ EPS. Diluted EPS factors in the impact of convertible notes, options, and other instruments that could increase the share count.

• Non-IFRS adjustments: Firms must flag any ‘underlying’ or ‘normalised’ EPS numbers that exclude one-off costs or gains, so investors can spot the real story behind the headline figure.

• More frequent updates: ASX-listed companies with quarterly reporting cycles now need to provide EPS updates more often, giving investors fresher insights into company performance.

For retail investors, these changes mean you can expect clearer, more comparable EPS data when reviewing company announcements or annual reports in 2025.

How to Use EPS in Your Investment Strategy

EPS is a starting point, not the whole picture. Here’s how savvy Australian investors use EPS in practice:

• Compare companies in the same sector: EPS lets you benchmark profitability quickly, but always consider differences in capital structure and business models.

• Look for EPS growth trends: A rising EPS over several years often signals a company that’s growing its profits and rewarding shareholders.

• Check for dilution risks: If a company frequently issues new shares, future EPS could be diluted, reducing the value for existing shareholders.

• Pair with other metrics: Combine EPS with Price/Earnings (P/E) ratios, dividend yield, and return on equity to get a more complete view.

For example, in the March 2025 reporting season, Telstra’s EPS climbed 8% year-on-year, reflecting robust cost controls and rising mobile revenues. Investors applauded the result, but also examined the company’s debt levels and capital expenditure plans before making decisions.

Common Pitfalls: Don’t Rely on EPS Alone

It’s tempting to chase the highest EPS, but numbers can be misleading. Watch out for:

• One-off gains: Asset sales or tax credits can artificially inflate EPS for a single period.

• Accounting tricks: Changes in depreciation methods or aggressive share buybacks can boost EPS without real profit growth.

• Sector differences: Banks, miners, and tech firms have vastly different capital needs and profit cycles. Always compare apples with apples.

Ultimately, EPS is just one piece of the puzzle. Use it as a quick profitability check, but always dig deeper into the numbers and the business behind them.