Formula
EPS = net income ÷ shares issued
With net income of KRW 100 billion and 100 million shares issued, EPS is KRW 1,000. Dividing the share price by EPS gives the PER.
Definition
EPS (earnings per share) is net income divided by the number of shares issued, showing in money terms how much profit one share earned in a year. KRW 100 billion of net income divided by 100 million shares gives an EPS of KRW 1,000.
EPS moves the profit of the whole company down to the level of a single shareholder. Even with the same total net income, more shares mean less profit for each share, so EPS can be thought of as the company's profit restated on a per-share basis.
EPS is used on its own, but the share price divided by EPS is the PER. In other words, EPS is also the base number for measuring valuation. Jupick does not put EPS directly into the grade, but treats it as the starting point for understanding the size of earnings per share.
How to read it
A larger EPS means more profit earned per share. Because EPS is an absolute amount, though, it says nothing about whether the price is high or low without the share price alongside it. The same EPS of KRW 1,000 means a PER of 10 at a share price of KRW 10,000 and a PER of 50 at KRW 50,000, two very different readings.
EPS says more when viewed as a trend over several years. A steadily rising EPS signals that the profit each share earns is growing, while an erratic one points to unstable earnings.
When a share issue increases the share count, EPS falls even if net income is unchanged. Conversely, when the cancellation of repurchased shares reduces the share count, EPS rises. When EPS changes, it helps to separate whether earnings changed or the share count changed.
Points to watch
- Because EPS is an absolute amount, it is hard to compare across companies as is. Different par values and share counts produce different EPS, so comparing PER, which divides by the share price, is fairer.
- When net income spikes from one-off gains or losses, EPS is distorted along with it. A multi-year trend is safer than a single year's value.
- Diluted EPS, which reflects potentially dilutive shares (convertible bonds, stock options and so on), comes out lower than basic EPS. It is worth checking which basis is used.