What is EPS and how to calculate EPS (Earning per share) is very important to know how to calculate earnings per share before investing in any company. Today we will discuss on Earnings per share (EPS), how is calculated and how the economic health of the company is correlated with EPS. EPS is an important tool to know the economic structure of the company. If we know EPS so can easily calculate PE (Price Earning) ratio.
Earnings per share is the monetary value of earnings per outstanding share of common stock for a company or in other words, Earning per share, also called net income per share that is a market prospect ratio that calculates the amount of net income earned per share of stock outstanding. It will be calculated as
Net profit / Total number of shares
If a company with a capital of Rs 10 Crore to Rs 10 cost 1 Crore shares, and the company earned a net profit of Rs 20 Crore so earning per share (EPS) would be 20 Rs.
20 Crore/1 Crore=20
If a company has only announced quarterly results, then company’s full-year earnings per share can also be calculated that is based on those quarterly announced results.
In the above example, if the company’s net profit of Rs 6 Crore for the coming quarter is declared, we can guess that the company’s earnings per share increased to 24Rs in the coming year. Similarly, on the base of half-yearly results, annual per share earnings can also be calculated.
Always note that, If the company‘s growth is rapidly increasing or the company works seasonally, which varies entire year, so the forecasting of annual per share earnings on the base of quarterly results could be wrong.
One more thing to note is that even if the company has a great deal in the current quarter, which is not likely to repeat the deal, and then the annual earning should be calculated as by adjusting the profit or loss from that deal.
Prices of most shares depend on the prospects of the current or coming year’s earnings per share.
EPS and PER (Price Earning Ratio) are two big standards to check which stock is cheap or expensive in market or of a potential increase in stock prices.
PE Ratio (PER). With the help of the price earnings ratio it can be evaluated the prospects of rise in the stock’s price. Price Earning Ration is a valuation method that used to compare current share price of a company to its per share earnings.
Hope so that the above information will be helpful to all readers, especially to the beginner. We are inviting all readers to share your own thoughts, Indian stock market tips, strategies. Share your Stock Trading thoughts and blog links in the comments section of this post.