What Is EPS In Share Market
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First of all let me tell you the full form of EPS. EPS means – Earning Per Share. If I speak in simple language, how much return does any company give per share? Now some people might have understood what EPS is but there might be some people who still haven't understood. So let us understand EPS with a practical example.
Suppose there is a company which has 1 crore shares in the market, then we want to find out how much return the company gives per share. So let me tell you the formula for that.
Suppose the price of 1 share of the company is ₹ 100 and the company gives ₹ 15 per share (EPS). From this you can find out how much return this company can give you on investment annually.
Formula = EPS*100 /Share Price
According to our example, return will be 15*100/100 = 15%
According to this, your money will double in 7 years.
Always keep one thing in mind that the value of EPS never remains the same. It varies according to the conditions of the company. EPS is a part of fundamental analysis, for this you can read our fundamental analysis article.
Types of EPS in the Stock Market
You have understood well what EPS is, so let me now tell you how many types of EPS are there.
1. Basic EPS
2. Diluted EPS
Before knowing about these two EPS types, we have to understand Employee Stock Options, Convertible Preference Share and Convertible Debentures. So let us first understand these terms one by one.
Employee Stock Options: Some companies give a stock option to some of their senior staff members under which they can buy the company's stocks at a lower price than the market. For example, we took the example that the share price of a company is ₹ 100 and a few years ago the company has given the option to some of its employees to buy new shares at ₹ 50. So, whenever the employee wants, he can buy the shares of the company for ₹ 50 and sell them in the market. And if this happens then the number of shares of the company in the market will increase due to which the value of EPS will reduce.
Convertible Preference Share: Friends, although Preference Shares cannot be sold in the market, but if Preference Shares are convertible then they can be converted into a fixed number of Equity. And if this happens then the number of shares will increase and this will reduce the EPS.
Convertible Debentures: Due to this also the value of EPS gets reduced. Let us tell you how? If any company issues Convertible Debentures, they can be converted into Equity after a certain period of time. And if this happens then the number of shares will increase and the EPS will reduce.
So friends, now you have learned about Employee Stock Options, Convertible Preference Share and Convertible Debentures, now you will easily understand the Types of EPS.
1. Basic EPS - In this we see the EPS of the shares issued by the company in the market, it is called Basic EPS.
2. Diluted EPS - If the shares of a company increase due to Convertible Preference Shares or Employee Stock Options, then due to this the value of EPS reduces.
