How is earnings per share (EPS) calculated?

Earnings per share (EPS) is calculated by taking the net income of a company and dividing it by the number of outstanding shares of common stock. This metric provides a way to measure the profitability of a company on a per-share basis, which is useful for investors to assess the financial performance of the company relative to its share count.

Using the number of outstanding shares in the denominator allows for a clearer understanding of the earnings attributable to each individual share, making it easier for investors to compare performance across different companies or time periods. EPS is often used in financial analysis to gauge a company's profitability and is a key indicator in evaluating investment decisions.

The other options provided do not accurately describe the EPS calculation. For instance, dividing net income by total assets does not reflect earnings per share but rather offers a measure known as return on assets, which evaluates how efficiently a company uses its assets to generate earnings. Multiplying net income by outstanding shares is also incorrect, as it would yield a value that does not represent earnings on a per-share basis. Lastly, net income minus dividends distributed does not pertain to EPS; instead, it relates to retained earnings or distributions to shareholders without incorporating the share count in the calculation.