adjusted earnings per share

A company's earnings per share calculated by removing one-time, non-recurring, or non-cash items from net income.

Adjusted earnings per share (EPS) is a profitability metric that filters out "noise" from a company's standard GAAP or IFRS earnings. It excludes one-time, non-recurring, or non-cash events such as restructuring costs, legal settlements, asset write-downs, or large non-cash expenses like stock-based compensation. By removing these distorting items, the metric aims to present a clearer picture of a business's normalized, ongoing profitability. To calculate adjusted EPS, analysts or management start with standard net income, add back non-recurring expenses (or subtract non-recurring gains), and divide the resulting adjusted net income by the diluted shares outstanding. While standard EPS is strictly regulated by accounting bodies, adjusted EPS is a non-GAAP measure, meaning companies have significant discretion over which items they classify as "one-time" or "non-operating." Investors care about adjusted EPS because it helps them evaluate core operational performance and make more accurate year-over-year comparisons. It helps determine whether a sudden drop or spike in earnings is a permanent trend or just a temporary anomaly. However, because of its subjective nature, investors must scrutinize what management chooses to exclude, as some companies repeatedly add back recurring operational costs to paint an overly optimistic picture of their financial health.

Company A reports standard GAAP net income of $10,000,000 and has 5,000,000 diluted shares outstanding, resulting in a GAAP EPS of $2.00. However, the company incurred a one-time litigation charge of $2,500,000 during the year. To find the adjusted EPS, the litigation charge is added back to net income ($10,000,000 + $2,500,000 = $12,500,000 adjusted net income). The adjusted EPS is then calculated as $12,500,000 / 5,000,000 = $2.50.