<p>Basic Earnings Per Share (EPS) is a key financial metric that measures a company's profitability by dividing its net income by the number of outstanding shares. It's a widely used indicator for investors to evaluate a company's performance and make informed trading decisions.</p>

<h2>How It Works</h2>
<p>EPS is calculated using the following formula:</p>
<table>
<tbody>
<tr>
<td><strong>EPS</strong></td>
<td>=</td>
<td><strong>Net Income</strong></td>
<td>-</td>
<td><strong>Preferred Dividends</strong></td>
<td>/</td>
<td><strong>Weighted Average Shares Outstanding</strong></td>
</tr>
</tbody>
</table>
<p>Here's a breakdown of the components:</p>
<ul>
<li><strong>Net Income</strong>: The company's total revenue after all expenses, including taxes and preferred dividends.</li>
<li><strong>Preferred Dividends</strong>: Dividends paid to preferred shareholders before common shareholders.</li>
<li><strong>Weighted Average Shares Outstanding</strong>: The average number of shares that were outstanding during the period, weighted by the time each share was outstanding.</li>
</ul>

<h2>Why It Matters for Traders</h2>
<p>EPS is a crucial metric for traders for several reasons:</p>
<ul>
<li>It helps compare a company's performance over time and against its peers.</li>
<li>It's a key component in calculating the price-to-earnings (P/E) ratio, which is another important valuation metric.</li>
<li>It can help identify undervalued or overvalued stocks, as EPS growth may not always align with stock price movements.</li>
</ul>

<h2>Example</h2>
<p>Let's say Company X has a net income of $100 million, pays $5 million in preferred dividends, and has 10 million shares outstanding. Its EPS would be:</p>
<p><strong>EPS = ($100M - $5M) / 10M = $9.50</strong></p>
<p>If Company X's stock price is $100, its P/E ratio would be 10.56 ($100 / $9.50).</p>

<h2>Key Takeaways</h2>
<ul>
<li>EPS is a measure of a company's profitability per share.</li>
<li>It's calculated by dividing net income by weighted average shares outstanding.</li>
<li>EPS is a vital tool for traders to evaluate companies and make informed trading decisions.</li>
<li>EPS is used to calculate the P/E ratio, another important valuation metric.</li>
</ul>