What is EPS? Why do investors need to understand this indicator?

Anyone who has studied investing in stocks has probably heard the term “EPS” already. But how important is the EPS value really when it comes to making buy or sell decisions? Today, let’s clarify what EPS is, how it can help us, and how to use it correctly.

What exactly is (Earnings Per Share)

The full name of EPS is Earnings Per Share, which simply means the profit earned per share. It is a financial indicator that shows how much profit a company makes for each share.

It is calculated by taking the company’s net profit (which is the profit remaining after deducting expenses, interest, and taxes) and dividing it by the total number of shares issued by the company in the market, to see how much profit is attributable to each share.

Why is EPS important? Because it helps investors clearly see whether the company is truly profitable or not, regardless of whether the company is large or small, or has issued many or few shares.

How to easily calculate EPS

The formula for EPS is very simple:

EPS = Net Profit ÷ Weighted Average Number of Shares Outstanding in the Period

If you want to find the total number of shares, you can calculate it from:

Number of Shares = Market Capitalization (Market Cap) ÷ Current Share Price

###Example for clarity

Imagine Company A has a net profit of 1 million baht and has issued 1,000 shares, then EPS = 1,000 baht/share.

If Company B has the same profit (1 million baht) but has issued 2,000 shares, then EPS = 500 baht/share.

See? Even with the same profit, the EPS differs because of the different number of shares issued.

Similarly, Company C, with a profit of less than (500,000 baht), but only 500 shares issued, still has EPS = 1,000 baht/share, equal to Company A!

Real-world example: PTT Public Company Limited in 2022 had a net profit of 91,174.86 million baht and 28,562.9963909774 million shares outstanding, so EPS = 3.19 baht/share.

How to use EPS for investment decisions

EPS is very useful when used correctly:

1. Comparing companies within the same industry

If you want to know which company is most efficient at generating profits, compare their EPS. A higher EPS indicates more profit per share.

2. Looking at growth trends

If a company’s EPS steadily increases each year, it shows the company is growing and generating good profits. Conversely, decreasing EPS may indicate problems in the business.

3. Calculating PE Ratio (Price-to-Earnings Ratio)

PE Ratio = Share Price ÷ EPS

This metric shows how much you need to pay to earn 1 baht of profit from the company. A low PE Ratio = undervalued stock (relative to earnings), while a high PE Ratio = overvalued stock.

Example: If the stock price is 100 baht and EPS is 10 baht, then PE Ratio = 10.

4. Analyzing growth rate (EPS Growth)

Suppose EPS last year was 8 baht, and this year it is 12 baht, then EPS Growth = ((12-8)/8×100 = 50%).

Positive EPS Growth = company is growing; negative growth indicates slowdown or contraction.

5. Evaluating dividend payout

Dividend Payout Ratio = Dividends per share ÷ EPS

This shows what percentage of profit the company distributes as dividends, with the remainder retained for reinvestment and reserves.

The 3 types of EPS you should know: Basic, Diluted, and Adjusted

Basic EPS (

This is a straightforward calculation: net profit ÷ total shares outstanding.

) Diluted EPS ### This accounts for potential shares that could be issued, such as stock options or convertible securities. Companies calculate Diluted EPS to provide a more realistic and conservative estimate.

( Adjusted EPS ) This involves adjusting EPS by removing abnormal or one-time expenses to reflect the true profitability. For example, excluding losses from asset sales.

The fact: High EPS does not always mean a good company

An important point: a high EPS does not necessarily mean the company is good because:

A company can boost EPS through stock buybacks ###Stock Buyback( — reducing the number of shares outstanding, which increases EPS even if actual profits haven’t increased.

EPS does not indicate risk, true financial health, or future growth prospects.

Other limitations of EPS

• Historical data: EPS reflects past performance only and cannot predict future success.
• Ignoring risk: A high EPS of a risky company remains high; risk factors are not reflected.
• Comparison issues: An EPS of 10 baht for one company may be good or bad depending on how it compares to others or market expectations.

Summary: What is EPS, and do different stocks have different EPS?

EPS )Earnings Per Share( is a metric that helps investors understand a company’s profitability efficiency. It is a useful tool but should be used alongside other indicators such as PE Ratio, EPS Growth, and overall financial health.

A reasonable analysis sequence:

1. Study current and historical EPS
2. Check EPS growth
3. Calculate PE Ratio for valuation
4. Compare with other companies in the same industry
5. Combine with other analyses before making decisions

Remember: the best indicators are often not just one metric but a combination of multiple perspectives.