Limitations of earnings per share — Accounting glossary

EPS is affected by accounting policies, exceptional items and changes in the share denominator, including issues, repurchases and potential dilution. It does not directly show cash generation, risk, capital investment or the market price paid for a share. Compare consistent periods, distinguish basic from diluted EPS, and consider cash flow and other indicators. A rising EPS does not guarantee an increase in total shareholder wealth.

Worked example

A company’s profit stays at $1 million while a share buyback reduces weighted average shares from 1 million to 800,000. EPS rises from $1.00 to $1.25 even though total profit is unchanged.

Common mistake

Interpreting an EPS increase as proof that total profit increased or comparing EPS across periods without considering share issues and adjustments.

Where it appears in your exams

Qualification	Exam	Relationship	Period
ACCA	FR	Direct	September 2026–June 2027
ACCA	SBR	Direct	September 2026–June 2027