Lesson 05 — EPS: Earnings Per Share
Week 04 · Lesson 5 of 5 · Week 04 — Reading a Profit & Loss Statement
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EPS = the profit earned per share of the company. EPS = Net Profit (PAT) / Total Number of Shares "Ek share ne kitna kamaya — yeh hai EPS." | Type | Meaning...
What is EPS?
EPS = the profit earned per share of the company.
EPS = Net Profit (PAT) / Total Number of Shares
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"Ek share ne kitna kamaya — yeh hai EPS."
Basic vs Diluted EPS
| Type | Meaning |
|---|---|
| Basic EPS | PAT ÷ shares currently outstanding |
| Diluted EPS | PAT ÷ (outstanding shares + potential shares from ESOPs, convertible bonds) |
Use Diluted EPS
Diluted EPS is more conservative and realistic because it accounts for all possible future shares.
Why EPS matters
- PE Ratio = Share Price ÷ EPS — the most common valuation metric
- EPS Growth — if EPS grows 15-20% annually, it's a strong compounder
- Comparability — you can't compare profits of a ₹10,000 Cr company with a ₹100 Cr company, but you can compare their EPS growth rates
Watch out for
- Share buybacks inflate EPS (fewer shares, same profit = higher EPS) — not real growth
- Stock splits reduce EPS optically — not a deterioration
- Sudden EPS jump — check if it's from core business or one-time items
Quick check on InvestingSamjho
Open any company → Financial Statements → check the "Basic EPS" and "Diluted EPS" rows at the bottom of the P&L.
Key takeaway
EPS connects company profits to your ownership. Growing EPS = growing value per share.