Earnings per share (EPS) is a company's net income divided by its number of shares, which tells an investor how much profit each share earned over a period. The SEC's guide to financial statements puts it plainly: to calculate EPS, take total net income and divide it by the number of outstanding shares [2]. A current example: Microsoft (MSFT) reported on July 29, 2026 that net income for its fiscal fourth quarter (the three months ended June 30, 2026) was $35.8 billion on 7,443 million weighted average diluted shares, giving diluted earnings per share of $4.81, up 32% from a year earlier [1]. For the full fiscal year 2026, diluted EPS was $17.95 on net income of $133.7 billion [1].
What is earnings per share and how is it calculated?
The basic formula is net income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Companies report two versions:
- Basic EPS uses the actual weighted average share count.
- Diluted EPS adds shares that could be created by stock options, restricted stock units and convertible securities. It is always equal to or lower than basic EPS and is the figure analysts quote.
Applying the formula to Microsoft's quarter: $35.8 billion divided by 7.443 billion diluted shares equals $4.81 [1]. For the March 2026 quarter, DataPorium's income statement data show net income of $31.78 billion, 7,445 million diluted shares and diluted EPS of $4.27, with basic EPS of $4.28 [3]. The one-cent gap between basic and diluted EPS is the dilution from employee stock awards. Weighted average shares are used because share counts change during a quarter as companies buy back stock or issue it.
Microsoft's EPS in numbers
| Period | Net income | Diluted shares | Diluted EPS | Change vs prior year |
|---|---|---|---|---|
| Quarter ended March 31, 2026 | $31.78 billion | 7,445 million | $4.27 | n/a |
| Quarter ended June 30, 2026 | $35.8 billion | 7,443 million | $4.81 | Up 32% |
| Fiscal year ended June 30, 2026 | $133.7 billion | n/a | $17.95 | Up 32% |
Sources: Microsoft investor relations for the June quarter and fiscal year [1]; DataPorium financial statements for the March quarter [3]. Revenue for the June quarter was $90.0 billion, up 18%, and operating income was $40.6 billion, also up 18%; EPS grew faster than revenue because margins widened and the share count edged lower [1].
How to read earnings per share: five checks
- Compare with the same quarter a year earlier. Microsoft's $4.81 was up 32% year over year, a growth rate that matters more than the dollar figure itself [1].
- Check the share count. If EPS rises only because shares fall, the business is not growing. Microsoft's diluted count moved from 7,445 million to 7,443 million between the March and June quarters, so almost all of the EPS gain came from higher net income [1][3].
- Separate GAAP from adjusted. Companies often publish a non-GAAP EPS that excludes stock compensation, restructuring or one-time gains. The $4.81 figure is GAAP [1]. Adjusted numbers can be useful, but investors may consider starting from the audited GAAP figure.
- Look for one-time items. Gains on investments, tax settlements or asset sales can lift EPS in a single quarter. In Microsoft's March quarter, DataPorium data show $1.52 billion of gains on the sale of securities inside other income, which added about 20 cents per share before tax [3].
- Turn EPS into a valuation. Dividing price by trailing 12-month EPS gives the price-to-earnings (P/E) ratio, discussed next.
How investors use EPS: P/E ratios, growth and surprises
The most common use of earnings per share is the P/E ratio. Microsoft closed at $464.72 on July 31, 2026, according to DataPorium price data [3]. Divided by fiscal 2026 diluted EPS of $17.95, the trailing P/E was about 25.9 times [1][3]. A P/E of 26 means an investor pays $26 for each dollar of last year's earnings; whether that is expensive depends on how fast EPS is expected to grow. A company growing EPS at 32% can justify a higher multiple than one growing at 5%, which is why analysts also track forward EPS (the estimate for the next 12 months) and the PEG ratio (P/E divided by growth).
EPS also drives the reaction to earnings reports. The market compares reported EPS with the consensus estimate; a beat or miss of a few cents can move a large stock several percent. Microsoft's shares rose from $393.35 on July 28, 2026, the day before the report, to $451.10 on July 30 and $464.72 on July 31, a gain of about 18% in three sessions [3]. That move reflected not only the $4.81 EPS but also the growth in Azure and the commercial backlog disclosed in the same release [1].
Investors may consider a few cautions. EPS is an accounting measure, not cash. Free cash flow can be far lower when a company spends heavily on data centers and equipment, as the largest technology companies have done in 2026. EPS can also be managed through buybacks financed with debt. Finally, EPS says nothing about the balance sheet. DataPorium's stock market data pairs income statements with balance sheets and cash flow statements so that EPS can be read in context, and the stock screener can filter companies by EPS growth and P/E [3].
Microsoft earned $4.81 per diluted share in the quarter ended June 30, 2026, which at the July 31 close of $464.72 and fiscal year EPS of $17.95 implied a trailing P/E near 26.
Key takeaways
- EPS equals net income divided by weighted average shares; diluted EPS includes shares from options and stock awards [2].
- Microsoft's fiscal fourth quarter 2026 EPS was $4.81 ($35.8 billion net income over 7,443 million shares), up 32% [1].
- Fiscal 2026 diluted EPS of $17.95 and a July 31, 2026 price of $464.72 give a trailing P/E of about 25.9 [1][3].
- Read EPS alongside the share count, one-time items and cash flow, not in isolation.
- Earnings surprises versus consensus estimates drive short-term stock moves, as Microsoft's 18% three-day rise showed [3].
Frequently asked questions
What does EPS mean in stocks?
EPS is earnings per share: a company's net income divided by its number of shares. It shows how much profit each share earned in a quarter or a year, and it is the denominator of the P/E ratio [2].
What is the difference between basic and diluted EPS?
Basic EPS uses the actual weighted average share count, while diluted EPS adds shares that could be issued from options, restricted stock and convertibles. Microsoft's March 2026 quarter showed basic EPS of $4.28 and diluted EPS of $4.27 [3].
What was Microsoft's EPS in 2026?
Microsoft reported diluted EPS of $4.81 for the quarter ended June 30, 2026 and $17.95 for fiscal year 2026, both up 32% from the prior year, in its July 29, 2026 release [1].
Is a high EPS good?
Not by itself. A high dollar EPS can simply reflect a small share count or a high share price. What matters is EPS growth, its quality (recurring profit rather than one-time gains) and the price paid for it, measured by the P/E ratio.
