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.

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Price to Earnings Ratio - Formula

EPS Formula:


Formula to Calculate the Price to Earnings Ratio

Definition:

Price to Earnings or PE ratio is the proportion or relationship, expressed as a number, between the market price of a stock and the scrip's earnings per share or 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.


Example of Calculation of PE Ratio of SJVN Ltd.

Significance:

Price to Earnings Ratio is the first of the two most important metric in determining the fair price of a share, the second being ‘Price to Book Value Ratio'. If the PE Ratio is less than 10, it is a good bargain. Maximum recommended is 10 times, beyond which the price is not fair or reasonable.

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