Showing posts with label EPS. Show all posts
Showing posts with label EPS. Show all posts

Friday, September 23, 2016

Earnings Per Share (EPS) - Formula

EPS Formula:


EPS Formula

Definition:

Earnings Per Share (EPS) means the 'Net Profit' or 'Profit After Tax (PAT)' of a company reduced or converted to a single share.

Significance:

EPS is the important, denominator component in calculating Price to Earnings Ratio.


Example:

Let us consider the example of the EPS of SJVN Ltd., a company listed on Indian stock exchanges, for the financial year ending on 31st March 2015.

Example Calculation of EPS of SJVN Ltd.

Related Links:

Tuesday, September 20, 2016

Sunday, September 4, 2016

Earnings Per Share (EPS) - Definition

Definition:


"Earnings Per Share (EPS) means the 'Net Profit' or 'Profit After Tax (PAT)' of a company reduced or converted to a single share.




Formula:



Picture shows formula for calculating Earnings Per Share (EPS)

Example:


Let us consider the example of the EPS of SJVN Ltd., a company listed on Indian stock exchanges, for the financial year ending on 31st March, 2015.

Picture shows a table computing earnings per share EPS

Further Reading:






Tuesday, August 9, 2016

Is the Stock Market a Place to Make a Fast Buck?

I have met in my long consulting career of about three decades many people who believe that the ‘Stock market’ is the place to make a fast buck – a place where one can become rich quickly. I have also met an equal number of people who is convinced that stock market is the most dangerous place on the earth, and that it is meant solely for gamblers and speculators and certainly not for investors. I can state with conviction that both the extreme views are far from the truth.

Playing the stock markets is certainly not the get-rich-quick solution. On the other hand those who enter with such a notion are sure to burn their fingers. Of course there are a few exceptional examples of individuals who have consistently made successful bets on stocks, currencies and commodities, but these examples do not hold good for most of the large number of speculators indulging in day trading. Those who had made quick gains a few times should attribute the success only to pure luck; they are bound to run out of lady luck soon and are face the unpleasant consequences.

Stock market is also a place where through prudent, disciplined and sustained investments, spectacular wealth can be built over very, very long periods of time, spanning two to four decades.

Why is it that there are no shortcuts to wealth creation? What are the essential ingredients of wealth creation?

Essentially there are two key factors behind wealth creation: natural growth in companies and secondly by the operating of the compounding effect.

Natural Growth:
Companies that supply goods and render services in an innovative and efficient manner are bound to prosper and consequently the long term investors owning the shares of such companies are also bound to prosper through regular dividends received during the long period of investment and appreciation in the market price of the shares, on the back of growth in the ‘Earnings Per Share (EPS)’.

Compounding
The amazing results of compounding were discovered and propounded by Albert Einstein. The ‘Miracle of Compounding’ works only over long periods of time and especially the spectacular results start occurring at the fag end of the very long period. Being a natural law like any other law of physics it operates at its own pace as per its own nature – there are absolutely no shortcuts.

To conclude, one cannot consistently make a fast buck playing on the stock markets, but through disciplined investments one can build significant wealth over very long time.

Sunday, July 24, 2016

How to Calculate 'Earnings Per Share' or 'EPS'?

Contrary to conventional financial statements, profit and loss account, balance sheet and statement of cash flows, which portray the financial picture in the company’s perspective, ‘Earnings Per Share (EPS)’ interprets the same information from the shareholder’s viewpoint. Mostly investors are interested in knowing what the corporation has earned for them, and EPS fulfills this requirement, exactly. In this article, let us examine how EPS is calculated.

Summarized information assembled from the audited financial statements of NMDC Ltd., for the financial year 2014-15 show: Operating revenue 12356.41, total expenses 4740.29, non operating income 2265.40, exceptional items of charge 113.01, corporation tax 396.47 and miscellaneous debits 0.44. All numbers are expressed in Indian Rupees (Rs.) in crores  (10 millions).

On drawing up the profits and loss statement, the results will be as follows:


Rs. In crores (10 millions)
Total Operating Revenues
12,356.41
Total Expenses
4,740.29
Operating Profits
7,616.12
Non Operating Revenues
2,265.40
Profit Before Exceptional Items
9,881.52
Exceptional Items
113.01
Corporate Income Tax
3,346.21
Miscellaneous Charges
0.44
Profit for the year
6,421.86

The balance sheet and schedule number 2.1 reveals that the company has an equity capital of Rs.396.47 crores of nominal value of Rs.1 each, that is 396.47 crore shares.

Dividing the net profit for the year by total number of equity shares we obtain he ‘Earnings Per Share (EPS)’.


Rs. In crores (10 millions)
Profit for the year
6,421.86


Number of Equity Shares ( In crores (10 millions) of nominal valye of Rs.1
396.47


Earnings Per Share – Rs. Per share
16.20

Our mathematical labors reveal that NMDC Ltd., had earned for its members Rs.16.20 for every equity share having a face value of Rs.1. On the current market price of the share of Rs.98.10, the EPS amounts to a tax-free return of 16.51%, indeed impressive, considering obtainable interest rate of about 7.50% for bank fixed deposits, which attract a tax rate of about 33%.

Thus, ‘Earnings Per Share’ or ‘EPS’ throws valuable perspective of the returns earned by the investee corporation for its shareholder.