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.
