In the stock market, one of the most common metrics used by investors to analyze a company’s profitability is Earnings Per Share (EPS). It reflects how much profit a company is making for each outstanding share of its stock. Investors, analysts, and traders often track EPS to compare companies and make informed investment decisions.
Earnings Per Share (EPS) is a financial ratio that shows how much profit a company earns for every share owned by shareholders. In simple terms, EPS tells investors the earning power of each share of the company’s stock.
The higher the EPS, the more profitable the company is considered to be, making it a key measure in evaluating a company’s financial health.
The formula for calculating EPS is:
EPS = (Net Profit – Preference Dividend) ÷ Number of Outstanding Shares
For example, if a company reports a net profit of ₹10 crore, pays preference dividends of ₹1 crore, and has 3 crore outstanding shares, then:
EPS = (10 – 1) ÷ 3 = ₹3 per share
This means each share earned ₹3 in profit during the financial year.
EPS can be calculated in two ways:
Several factors influence EPS in the share market:
A “good” EPS depends on the industry, company size, and market expectations. Generally:
While EPS is useful, it has some limitations:
Earnings Per Share (EPS) is a powerful financial ratio that shows how profitable a company is on a per-share basis. It helps investors in the share market compare companies, assess performance, and make better investment decisions. However, EPS should never be the only factor in stock analysis. Investors should also look at cash flows, balance sheets , and growth potential to get a complete picture.