Skip to main content

What is EPS And How It Is Used For Investing In Shares?

What is EPS And How It Is Used For Investing In Shares?

EPS, commonly known as Earning Per Share is the portion of a company's profit allocated to each shareholder of the company for holding one share of the company. It is the technical definition. Let's understand it in a simpler way.

Also Read
India's Top 10 Companies
6 Things You Should Know Before Investing in SIP
Success Story Of Haldiram

We all know when we start a business, it will either do profit or loss. Same happens with firms and companies. In the year-end company calculate the profit after paying tax to know the profit available to the shareholders. When company ascertains this profit then it calculates EPS or Earning Per Share by dividing that profit with the total number of share of the company.

Let's understand now by an example.

For the year ending on March 2018, Infosys reported a net profit ( Profit after tax ) 
16155 crores. Equity Dividend is ₹5623 crores and corporate dividend tax ₹1877. So let's see the diagram to understand how to calculate EPS.

So now we had checked how the EPS is calculated and what is its formula to calculate. now let's move further and know what is its use or why it is important to check EPS of a share before Investing.

The rule of thumb says that more the EPS better the share and this should be applied while choosing stocks. If you choose a stock for investing then check its EPS and compare the EPS of its peers in its industry. By doing that you will have a brief understanding of how the company is performing in its segments and how much return it is giving to its shareholders.

For an example, if one share is available at an EPS of 12, and another share of same industry is available at an EPS of 15 and both the shares are trading in the market at 110, then as per rule of thumb, we will select the second share having higher EPS. Let's check the EPS of different companies in the IT sector in India.

We can see that TCS has better EPS than its peers, so it is a wiser decision to buy TCS than any other company in IT Sector for the longer term. But EPS is not the only factor to check while investing in shares, there are also other factors which are relevant. We have discussed here the importance of EPS and if everything is same between two shares then we can use this rule to select the best one.

So, I hope you must have got clarity regarding EPS and how to use it while investing. Feel free to give your feedback in the comment section. If you have any question then you can ask me.

Thank You
Happy Investing


Popular posts from this blog

Success Story Of Colgate, One Of The Bestselling Toothpaste Brand

Success Story Of Colgate, One Of The Bestselling Toothpaste Brand
"It cleans your breath while it cleans your teeth", can you guess whose slogan is this. If you have guessed correct then today I'm going to tell you the success story of one of the best selling toothpaste brands of India i. e. Colgate. It's popularity can be measured by thousands of situations where the term toothpaste is replaced by Colgate in India. Do you know, this brand came into being almost 210 years ago, introduced by Williams Colgate. And initially, this company used to produce soaps, not toothpaste that too in jars and not tubes. So now, let's get back to the beginning of the story. 

Also Read
Success Story Of Haldiram Bujhia
Success Story Of AmulHow Maggie Became Successful?
The founder of Colgate, Willam Colgate was born on 25 Jan 1783 in England. His father was a farmer. But later, they shifted to Maryland in the US where his father along with a friend began to make candles and soaps. Unfo…

What is SIP? It's Advantages and Disadvantages

Hello friends, in this post we are going to discuss about SIP, its advantages and most importantly which no one will say you, its disadvantages.

So imagine what we used to do in 90's when we were kids. People had piggybanks but I personally had a small box where I used to put coins whenever I get money. There was a lot of emotions behind that and specially I used to fight whenever anyone touched my box. Imagine how our grand parents were saving money. The -most common sources were
Fixed Deposits(FD)Recurring Deposits(RD)If I will explain the true meaning of SIP then it will be similar to Recurring Deposits. SIP is modern era's RD. So what does SIP do? In SIP a professional invest money in capital markets on behalf of his/her clients. It's as simple as that. It's as simple as planting a small tree. It is as simple as taking care of your small baby.

Advantages of SIP:-

Safe From Market Fluctuation - One of the most important and remarkable advantage of SIP is, it saves yo…

Inspirational Story Of SONY, The Japanease Giant

Hello friends, today I'm going to discuss one of the most popular Japanese Multinational Corporations - Sony. It is such a famous company that people blindly believe its products by its name. And why not? There is hardly any product that would dissatisfy the customers. When it comes to the sound system, Sony stands out of the crowd. 

Also Read
Successful Story Of BMW
Success Story Of Rolls Royace
Success Story Of Jaguar
According to 2016, Sony is the fifth largest television manufacturing company in the world. The whole world of Sony is divided into various groups like Sony pictures, Sony finance services, Sony Mobile etc. Now let's get to know the success story of Sony from the beginning.

The story started with the World War when Ibuka and Morita two men were following their dreams. Ibuka was running a radio repair shop in Tokyo when he met Morita, 13 yrs younger to Ibuka. Then, both of them decided to start a business. And then taking a loan of 500 dollars, they started Tokyo Tele…