EPS is an important financial indicator for stock investment. But what is the true nature of EPS is not well understood by all investors. Therefore, CophieuX – Horse will help individual investors visualize this important financial indicator. Wish you successful investment & the money will be full soon
The content of the article includes:
What is EPS ratio? What does EPS ratio mean? Types of EPSRelationship between EPS and P/EHow much EPS is goodExamples for understanding EPSOther notes about EPS
I. What is EPS
?EPS (Earning Per Share) is the Earnings After Tax of 1 share.
Watching: What is Eps
With: Profit after tax is 4 consecutive quarters, If we say 2017 EPS, it is the profit after tax of a share of 2017; If we usually say EPS, we usually define EPS as the last 4 reported quarters
How to calculate EPS index:
For example: Vinamilk (VNM) stock in the last 4 quarters has a total profit of 10,028 billion VND and the number of outstanding shares is 1.45 billion shares. So, EPS of VNM will be: EPS (VNM) = 10,028 billion VND / 1,451 billion shares = 6,910 (VND)
II. What does EPS mean? Basic EPS & Diluted EPS!
Meaning of EPS:
Shows the profit of 1 share. When the business has earnings per share of 7000 VND like VNM, that is EPS = 7000 VND EPS is the most shortened version of profit after tax. Since the company’s annual profit can be very high, it is difficult to calculate that EPS = Profit / Number of shares
2 types of EPS
Includes: basic EPS and diluted EPS.
Basic EPS: EPS = (Net income – preferred stock dividends) / outstanding shares
Diluted EPS is the EPS issued by the Enterprise that has issued convertible bonds, preferred shares, stock options, ESOPs, issued to strategic shareholders, etc. So the shares should be diluted.
Diluted EPS is more accurate, as it reflects a future event.
III. What is the relationship between EPS and P/E
?EPS is the component that makes up the P/E ratio; The letter E in the P/E ratio stands for EPS. Since the stock price is always greater than 0 (P>0), while corporate profits can be profit or loss, EPS>0, or EPS=Or Price=P/E X EPSWhen EPS > 0, we can Calculate and value stock at P/E
IV. How much EPS is good?
If you have ever read the Comprehensive ROE article written by Ngo (here), you will find that ROE >15% is sustainable for at least 3 years, with an increasing trend is good.
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A share par value is 10,000 VND, (note that the par value is different from the book value and share price), all companies listed on 3 exchanges VN-INDEX, HNX, UPCOM have par value. The only price is 10,000 VND.
Therefore, a business that is evaluated as doing well will have EPS> 1,500 VND and maintain it for many years, with an increasing trend. At least EPS>1,000 dong!
V. General example of EPS
1. EPS of Vinamilk (VNM)
Comment:Basic EPS = diluted EPS = 6.91 thousand VND. The reason is that VNM has not issued convertible bonds, or valid stock options.EPS = 6,910 > VND1,500, and sustainable years => Vinamilk is a good companyP/E & EPS relationship is P/E = Price / EPS = 165.9 / 6.91 = 24.39. => P/E = 24.39 Number of shares outstanding is 1,451,246,749 and EPS = 6.91 => Profit after tax = EPS X Number of shares outstanding = 6.91 X 1,451,246,749 = VND 10,027 billion (more than VND 10 thousand billion)
2. EPS of Dam Sen Water Park Joint Stock Company, code DSN
Comments: DSN has:
Basic EPS = 7.40; Diluted EPS = 7.40. That means that each share of DSN has a profit after tax of 7,400 dong respectively. EPS = 7400 dong > 1,500 dong => DSN company is doing very well. Selling price is 56,500 dong. At a P/E of 7.64.
3. EPS of FLC Faros Construction Joint Stock Company (code ROS)
Comments: ROS has:
Basic EPS = 1.65; Diluted EPS = 1.38, which means that each DSN share has a corresponding profit after tax of VND 1,380 EPS = 1,380 ROS company does not perform well The selling price is VND 56,800. At a P/E of 38.6
Conclusion: The market prices of DSN (56.5) and ROS (56.8) are approximately the same, but each share of DSN makes 7,400 dong in profit, while ROS only makes 1,380 dong in profit. Or DSN’s P/E is only 7.64, and ROS is up to 38.60
For investment, you choose to buy DSN is a good choice, and buy ROS sooner or later you will lose.
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VIII. What is the drawback of EPS
?EPS can be negative and P/E doesn’t have an economic significance when the denominator is negative, so you must use other valuation tools due to surges, asset sales, intentional business owners, or being in a highly cyclical industry. At that time, EPS will be distorted. Enterprises continuously issue more shares, convertible bonds, ESOP shares causing EPS to decrease, investors are at risk. TTF period 2015-2016) made investors lose money, by increasing inventory and receivables…
P/S: However, to invest you don’t just need to understand EPS, you also need to learn more about stock valuation.