EPS (earnings per share)

What it is

A company’s net profit belongs to all its shareholders together. EPS splits that profit across every share, so you can see what one share earned in a year.

Companies report EPS every quarter and every year in their results. You will often see two figures: basic EPS and diluted EPS. Diluted EPS assumes things like employee stock options turn into shares, so it is usually a little lower.

How to read it

The EPS number on its own does not tell you much. An EPS of ₹10 is not better than an EPS of ₹2 if the first share costs ₹500 and the second costs ₹40. EPS is most useful in two ways.

First, growth: is EPS rising year after year? Steady EPS growth means profit per share is growing, which is what drives share prices over the long run. Second, valuation: EPS is the bottom half of the P/E ratio. Share price ÷ EPS tells you how many rupees you pay for ₹1 of yearly profit.

Limits to keep in mind

EPS can jump because of one-off gains, like selling land or a business. Check whether the profit came from the normal business.

EPS can also rise without the business growing, if the company buys back shares and the share count falls. And profit is not cash: an EPS that grows while cash from operations does not deserves a closer look.

Calculating EPS and P/E

A company made a net profit of ₹240 crore last year and has 12 crore shares. EPS = ₹240 crore ÷ 12 crore = ₹20. If the share trades at ₹500, the P/E is ₹500 ÷ ₹20 = 25. The next year profit rises to ₹288 crore with the same shares, so EPS grows 20% to ₹24.

Common mistakes

• Comparing EPS across companies directly. A higher EPS does not mean a cheaper or better share.
• Ignoring one-off gains that inflate EPS for a single year.
• Looking at one year’s EPS instead of the trend over five years.
• Forgetting that a split or bonus lowers EPS per share without changing the business.

A company earns ₹150 crore of net profit and has 30 crore shares. What is its EPS?

1. ₹5
2. ₹50
3. ₹4.50