Stocks Fundamental Measurement : EPS (Earnings per Share)

Stocks Fundamental Measurement : EPS (Earnings per Share)

You always see the word fundamentals on my blogs about Stock Market investing. Stocks Fundamental analysis, examines financial information about the company’s health and potential to succeed. Choosing good companies is the foundation of successful investing.

I will try to explain some fundamental stock measurement that will be helpful for every newbie and individual investor.

I will start with the EPS or Earnings per Share fundamental measurement. EPS is the king of company’s growth measure, it is the ratio of the company’s earnings with the number of outstanding shares.

One of the big challenges in evaluating stocks is by establishing an “apple to apple comparison”. Comparing the earning of one company to another doesn’t really makes sense, and using this raw numbers alone ignores the fact that two companies have different number of outstanding shares.

So, how does EPS help us in evaluating stocks?

Example:

Company A and Company B both earned 100php, but company A has 10 outstanding shares and company B has 100 outstanding shares. Which company stock do you want to own?

EPS =      Net Earnings/Outstanding Shares

From our example:

Company A EPS =   100php/10shares = 10 earnings per share

Company B EPS =   100php/100shares = 1 earnings per share

So, you should go for company A with 10eps. The EPS is helpful in comparing companies in the same industry.

Earnings per Share measurement is still a useful measurement. It won’t need exceptional intelligence to understand the EPS. The bigger the number, of course the better. The more the company earns, the more successful it is, and it will be more attractive to investors.

*****************************************************************