- Net income, revenues minus expenses,
is the net amount of assets generated in doing business.
Net income is the overall measure of a company's
economic performance during the period in question,
the month or the quarter or the year.
Net income is the one number that summarizes
the results of business operations of a company.
Now, accountants have been working for over 500 years
to fine tune the accounting rules to
properly measure revenues and expenses
so that net income is a good
measure of economic performance.
For large companies, the most commonly discussed
net income number is earnings per share.
By the way, earnings means the same thing as net income.
So, earnings per share is just the amount of net income,
divided by the number of ownership shares in the company.
Earnings per share, affectionately known as EPS.
And what is the EPS number mean?
If you own one share of stock, then, of Microsoft's
net income for the year end of June 30th, 2018,
$2.15 of that belongs to you.
Now, is $2.15 a number you can understand?
Sure it is.
Anybody can understand that number.
So, earnings per share, or EPS, is probably the
most commonly referenced number in accounting.
If you read about a company's
financial statements in the news,
the article is probably talking about
that company's earnings per share.
So that's the most common number in accounting,
net income, divided by the number of ownership shares
of stock of a company, or earnings per share.