Earnings per share (EPS) is defined by which of the following formulas?

Earnings per share (EPS) is calculated using the formula that deducts preferred dividends from net income before dividing by the weighted average shares of common stock outstanding. This is because EPS is specifically meant to measure the amount of earnings attributed to each share of common stock, which means that any dividends paid to preferred shareholders must be subtracted first, as they are not available to common shareholders.

The use of weighted average shares outstanding is critical in this calculation as it accounts for any changes in the number of shares throughout the reporting period, providing a more accurate reflection of earnings attributable to each share. This approach ensures investors have a clear and precise understanding of the earnings generated by each share of common equity in the company.

This methodology is standard in financial reporting, enabling comparisons across companies and time periods, thus maintaining consistency and comparability in financial analysis.