Earnings Per Share (EPS)

Description
EPS is the portion of the company's profit that is allocated to each individual outstanding share.

Why EPS is important to Investors?
> EPS as a measure of the profitability of the Company.
> EPS as an indicator of dividend payout.
> EPS as the determinant of P/E ratio.

Earnings per share is a common financial ratio. It is very easily accessible to investors as the company gives EPS figure on its annual reports. It is also usually the first ratio that investors look at because of its ease of understanding and indication of profitability. Despite its simplicity, EPS as a metric is extremely powerful and concentrates crucial information in a single number. It allows investors to compare investments across sectors, industries and to an extent also with alternative investments. It also helps to chart the financial performance of a particular company over time. This helps investors to make informed decisions. Though one must do a complete fundamental and market analysis before investing in a company, we can say that EPS as a metric by itself is also quite telling about the profitability & value of the company and can give investors a head start to sort the profitable companies from the nonprofitable ones.

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