For Quick Alerts
ALLOW NOTIFICATIONS  
For Daily Alerts

    What is EPS or earnings per share?

    |
    What is EPS or earnings per share?
    EPS or earnings per share is the net profit of a company divided by the outstanding shares of the company.
     

    For example, if a company has 2 crore outstanding shares and the net profit is Rs 2 crores, then the EPS is Rs 1.

    Formula for EPS: Net profits/ Outstanding shares

    Significance of EPS

    The earnings per share is an important parameter when evaluating if a stock is cheaply valued or expensively valued. However, EPS is considered along with the price to earnings ratio.

    The price to earnings ratio is market price divided by the EPS. So, if the current market price of a stock is Rs 35 and the EPS Rs 5, then the price to earnings or P/E ratio is 7.

    So, if company A has a P/E of 7 and company B has a P/E is 12, than we generally conclude that company A is available at a more attractive valuation. However, there are various other parameters that are used in arriving at whether a stock is attractive or not.

    These would include future growth prospects, price to book value, return on networth etc. Some stocks are accorded higher price to earnings ratio considering the stability of the industry, future prospects etc.

    For example, on the Indian bourses the stock of Hindustan Unilever is quoted at a very high price to earnings multiple. The stock is quoted thus because of the fact that it is a multinational and is also a dominant company and its focus on the fast moving consumer goods segment, makes it enviable, as it is a recession proof business.

    Along with EPS the diluted EPS also assumes significance. Diluted EPS takes into account any increase in the outstanding shares of the company that are likely or may have happened in the past. However, this could be a rare occurrence as dilution of equity does not happen too often.

    GoodReturns.in

    Read more about: eps
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more