what does a EPS of $3.00 mean for stockholders? i know EPS measures profiability but does...

what does a EPS of $3.00 mean for stockholders? i know EPS measures profiability but does that mean that stockholders can earn $3.00 per share that they own? can you also please explain P/E ratio in stock market

Expert Solution

EPS is Earnings per share i.e. Net Profit/Total number of shares

EPS does not benefit directly to shareholders. It is simply the profit earned by the company on a per share basis. Shareholder will receive the Dividend that the company will declare.

Say for example, a company has a profit of 3 Million and it has 1 Million Shares outstanding and it declares a dividend of $1 per share. In this case, EPS is $3. But shareholders will receive only $1 i.e. the dividend. Rest of the profits will be retained by the company for further growth of the business, which can result in higher profits in the future.

PE Ratio is the number of times people are ready to pay for per share earnings i.e. Market Price per share/EPS.

Continuing the above example, if the price of the company is qouted at $30 and its EPS is $3, then we can say that people are ready to pay 10 times of earnings. That 10 is nothing but PE Ratio.

jeff jeffy answered 2 years ago

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