Metric Explainer: Earnings Per Share (EPS)
How much profit the company earns for each share. If EPS is ₹50, the company earned ₹50 profit for every share outstanding. "EPS matlab ek share ke peeche ki...
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Simple definition
How much profit the company earns for each share. If EPS is ₹50, the company earned ₹50 profit for every share outstanding.
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"EPS matlab ek share ke peeche kitna profit hai. ₹50 EPS = har ek share ke liye ₹50 ka profit kamaya company ne."
Why it matters
- Foundation of PE ratio — the most-used valuation metric is Price/EPS
- Per-share basis — allows comparison across companies regardless of size
- EPS growth is the primary driver of long-term stock price
- Dividend per share cannot exceed EPS indefinitely
Formula
Basic EPS = PAT / Weighted Average Shares Outstanding
Diluted EPS = PAT / (Shares + Potential Shares from ESOPs, Convertibles)
Always use Diluted EPS
Diluted EPS accounts for stock options (ESOPs), convertible bonds, and warrants that could increase shares. It's the more conservative and useful number.
How to calculate
| Step | Source | Example (Infosys) |
|---|---|---|
| 1. PAT (attributable to owners) | P&L | ₹26,000 Cr |
| 2. Weighted average shares | Notes to accounts | 416 Cr shares |
| 3. EPS = PAT / Shares | ₹62.5 |
What affects EPS (without real business improvement)
| Event | Impact on EPS | Real performance change? |
|---|---|---|
| Stock split (10:1) | EPS drops 10× | No — same profit, more shares |
| Buyback | EPS increases | No — same profit, fewer shares |
| Bonus issue (1:1) | EPS halves | No — same profit, 2× shares |
| ESOP dilution | EPS decreases slightly | No — but watch dilution trend |
Sector context
| Sector | Typical EPS growth | PE × EPS = Price |
|---|---|---|
| IT (Large-cap) | 12–18% CAGR | PE 25 × EPS ₹60 = ₹1,500 |
| Banking | 15–25% CAGR | PE 15 × EPS ₹50 = ₹750 |
| FMCG | 10–14% CAGR | PE 50 × EPS ₹10 = ₹500 |
Common mistakes
Mistakes to avoid
- Comparing EPS across companies — ₹50 EPS at one company vs ₹5 EPS at another means nothing without share count context. Use PE ratio to compare
- Ignoring stock splits — After a split, EPS drops optically. Compare on a split-adjusted basis
- Buyback-inflated EPS — Buybacks reduce shares and inflate EPS without actual profit growth
- Exceptional items — One-time gains can spike EPS temporarily
Red flags
- EPS declining while revenue grows — margin compression
- Diluted EPS significantly lower than Basic EPS — high ESOP dilution
- EPS growing only because of buybacks, not profit growth
- Negative EPS for 2+ years — loss-making company
Related metrics
- PE Ratio — Price relative to EPS
- EPS Growth — How fast EPS is growing
- PAT — EPS numerator
- PEG Ratio — PE adjusted for EPS growth