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Earnings per share formula assists investors to get a picture of the amount of profit that a company earns per share of stock. It emphasizes financial power, effectiveness, and expansion opportunities. The profitability is easily determined by dividing the net income (including preferred dividends by the weighted average number of shares) by the weighted average number of shares. It enables comparisons both through time and against competitors. An increase in the EPS is an indicator of better performance and in most cases, investor confidence. Other measures of valuation can also be determined using this formula to allow investors to have an idea of whether their stock is underrated or overpriced using its earnings in comparison to its price.