6. Earnings Per Share (EPS):
EPS = Net Profit / Total number of Shares Outstanding
Net profits of the company belong to the shareholders. Earnings per share is the net profit divided by the number of shares. It indicates the amount of profit that company has earned, for every share it has issued.
Example:
For a company with Net Profit of Rs. 10 Lakh and outstanding shares 2 Lakh, the EPS would be Rs. 5 (Rs. 10 Lakh/ 2 Lakh).
How to Analyse:
EPS is a carefully scrutinised metric that is often used as a barometer to gauge a company’s profitability per unit of shareholder ownership. As such, earnings per share is a key driver of share prices. It is also used as the denominator in the frequently cited P/E ratio. A higher EPS shows higher profitability and better earnings for the shareholders and will be preferred over shares of companies with lower EPS. EPS is a significant variable in determining a share’s price.
