EPS is one of the important part of stock’s fundamental analysis. The stock of 5 rupees may be expensive if its fundamental or management is bad. On the other hand the stock of 5000 rupees may be cheap if its fundamental or management is good. In this article i am discussing about eps like what is good eps? how to analyse eps and advantages or disadvantages of eps? Let’s start:
What is good eps?
If you buy ‘vivo y51L’ in 3000 rupees then it is a good deal but the same thing you buy in 20000 rupees then it is obviously a bad deal. Every phone have their own features, quality ,looks differently. So where you buy vivo phone in 20000 rupees it is expensive. In Opposite you can spend 150000 rupees only for APPLE smartphone. Because you know its quality ,performance ,look etc. are better than others. The same thing is also applicable for stock market to buy a stock.
Now you have to find the company that have a good fundamental and management system. Because your invest in this stock depends on it. To analyse the stock you need the help of eps (earning per share). If any company’s earning (total profit) is good then its fundamental may be good.
Here eps represents if any company distributes its all share to its all shareholders then that much money (earning) will be got by each shareholder for each share.
Earning per share(EPS) formula:
The full form of EPS is earning per share or profit per share. So the formula of eps is:
EPS=Total profit(earning)/number of total share
To check total profit of any stock you have to visit any stock reading site like ticker, money control etc.. From there you get the company’s total profit. Just type the stock name and search.
To find the stock’s total share you have to need the stock’s market capitalisation and the current price of the stock(you also get this from those stock screening site).
Total share= Market capitalisation/ current price of the stock
Let’s understand with an example:
Let the X company’s total profit is 10 lakhs and market capitalisation is 10 crore and current price of the share is 1000. Then putting the above formula we get the total share of X company is 100000.
| Market capitalisation | 100000000 |
| Current price of stock | 1000 |
| Number of total share | 1000000 |
Then now putting the formula of eps, we get the eps of X company =(1000000/100000)=10.
it means the eps of X company is 10.
| Earning(profit) | 1000000 |
| Total number of share | 100000 |
| EPS | 10 |
Advantages/disadvantages of EPS:
Advantages of eps:
it presents stock’s earning per share. It helps to calculate pe ratio(one of the popular fundamental ratio)
Disadvantages of EPS:
eps does not properly measure some company’s earning because the earning of those stock is up and down a wide every year.
If any stock’s eps is growing then it is good sign of the stock. But you have to check what is the reason of eps growth’s like the changes that have done by the company’s management ,the top sell product ,from where the most of revenue coming and also the valuation etc. At the end i just want to tell you that you should not buy any stock on the only basis of eps. You should check all the fundamental and management.
Best wishes to invest.