Unfortunately, early attempts to create uniform reporting were unsuccessful. As a result, consumers of EPS information became skeptical. Users were uncertain as to what EPS really meant when compared over time and across companies. Applying the set of rules, however, meant working with a complex maze of terms, procedures, and subjective assumptions. Consequently, CEOs, practicing accountants, management, and investors often criticized EPS because it was difficult to understand and compare within and across industries.
Outstanding shares is defined as common shares presently held by someone other than the firm.
Standardizing by the number of outstanding shares enables the user to compare the current EPS value to prior years and to other businesses. Investors are concerned with this measure because it illustrates a company's bottom-line performance on a per share basis. Basic EPS measured actual earnings divided by average outstanding common shares for the period. Complex EPS measured a firm's performance, assuming convertible debt and equity instruments had been hypothetically converted into common stock. For example, if a company has issued convertible preferred stock on their books, the preferred stock is shown in the balance sheet as part of stockholders equity.