what is eps in share market ?

In the share market, the full name of EPS (EPS) is Earnings Per Share. It indicates a company’s earnings per share. In simple terms, EPS is the amount of a company’s total profit over a specific period that is allocated to each outstanding share.

It is a very important indicator for investors in the share market because it helps to measure the company’s profitability.

How is EPS calculated?

To calculate EPS, the company’s Net Income is divided by the total number of outstanding common shares, after deducting Preferred Dividends (if any) for preferred shareholders.

The general formula is:

EPS=Number of Common Shares(Total Net Income−Preferred Dividends)

• Total Net Income: This is the company’s total profit after deducting taxes and other expenses.
• Preferred Dividends: Some companies have preferred shares whose holders have the right to receive dividends before common shareholders. If such shares exist, the dividends payable to them must be deducted from the total profit.
• Number of Common Shares: This is the total number of common shares of the company currently outstanding in the market.

Why is EPS important?

1. Measure of Profitability: EPS is a direct measure of a company’s profitability. A high EPS indicates that the company is earning more profit per share, which is usually a positive sign.
2. For Comparison: Investors can use EPS to compare the profitability of different companies within the same industry.
3. Basis for P/E Ratio Calculation: EPS is an essential component for calculating the P/E Ratio (Price-to-Earnings Ratio). The P/E Ratio is calculated by dividing the share’s market price by the EPS, which indicates how much investors are willing to pay for every 1 Rupee of the company’s earnings.
4. Indicator of Growth: If a company’s EPS increases over time, it indicates that the company is improving in terms of profitability.

Therefore, EPS is the amount of a company’s profit per share, which helps investors evaluate the company’s performance and profitability. A high EPS is generally considered good, but it is important to consider other financial indicators and the overall situation of the company before making investment decisions.