Basic Earnings Per Share (EPS) is one of the most quoted – and misunderstood – numbers in the Australian investing landscape. Whether you’re just starting out or managing a diverse portfolio, understanding EPS is essential for making sense of company performance, share valuations, and market headlines.
What is Basic Earnings Per Share (EPS)?
EPS measures how much profit a company makes for each ordinary share on issue. It’s a core indicator of profitability, calculated as:
- Basic EPS = (Net Profit After Tax – Preferred Dividends) / Weighted Average Number of Ordinary Shares
This figure helps investors compare companies of different sizes and industries on a per-share basis, allowing for apples-to-apples analysis.
Why EPS Matters for Australian Investors in 2025
EPS is front and centre in 2025, as ASX-listed companies face a landscape shaped by tighter monetary policy and evolving corporate tax rules. Here’s why EPS is more relevant than ever:
- Market Sentiment: A rising EPS often signals improving profitability, which can drive share prices higher. Conversely, a falling EPS may trigger investor caution.
- Dividend Potential: Australian companies, particularly blue-chip stocks like the major banks and miners, often set their dividend policy based on EPS growth trends.
- Valuation Multiples: Key ratios like Price/Earnings (P/E) rely on EPS as the denominator, directly impacting how ‘cheap’ or ‘expensive’ a share appears.
In 2025, with the ASX 200 hovering near record highs and sectors such as renewables and tech showing robust EPS growth, understanding this metric is crucial for investment decisions.
Recent Policy Updates: What’s New for EPS Calculation?
Australian accounting standards (AASB 133) guide EPS reporting, and 2025 has seen some refinements:
- Disclosure Clarity: ASX regulators now require companies to separately report basic and diluted EPS in half-year and full-year results, enhancing transparency for retail investors.
- Share Buybacks: With several major ASX companies (like BHP and Woolworths) conducting on-market buybacks in 2024–2025, EPS calculations have become more dynamic. Fewer shares on issue after a buyback mean basic EPS can rise, even if net profit stays steady.
- One-Off Items: Recent guidance encourages companies to disclose the impact of significant one-off gains or losses on EPS, helping investors see the underlying trend.
For example, when CSL Limited reported its FY24 results, it highlighted both statutory and underlying EPS to give investors a clearer picture amid currency fluctuations and acquisition costs.
Real-World EPS Example: Tracking a Top ASX Stock
Let’s say you’re analysing Commonwealth Bank (CBA). In its 2024 annual report, CBA posted a net profit after tax of $10.2 billion and had an average of 1.7 billion shares on issue. This gives:
- Basic EPS = $10,200,000,000 / 1,700,000,000 = $6.00 per share
If CBA completes a $1 billion share buyback, reducing shares on issue to 1.65 billion, and profits remain flat, next year’s basic EPS would rise to $6.18 per share. This boost is purely due to fewer shares, not higher profits—a nuance investors should always check for.
How to Use EPS in Your Investment Decisions
EPS is just one piece of the puzzle. Here’s how savvy investors use it in 2025:
- Compare Across Sectors: Banks, miners, and healthcare stocks all report EPS, but growth rates vary. Compare within sectors for the most meaningful insights.
- Look for Consistency: A steadily rising EPS over several years often signals a high-quality company.
- Watch for ‘Earnings Quality’: Dig deeper if EPS jumps due to asset sales, tax credits, or share buybacks rather than core business growth.
- Combine with Dividends: High EPS doesn’t always mean high dividends—check payout ratios and management commentary.
Remember, EPS is a starting point. Use it with other measures like cash flow per share and return on equity for a full picture.
Conclusion
Basic Earnings Per Share is a must-know metric for any Australian investor, especially in today’s fast-changing market. By understanding what drives EPS, how it’s reported, and its impact on share prices and dividends, you’ll be better placed to make confident investment calls in 2025 and beyond.
