Earnings Per Share (EPS) and Price-to-Earnings (P/E): What They Are and How to Read Them

Today in Sahmino Academy we learn two key bourse numbers: earnings per share, or EPS, and the P/E ratio. In this lesson we see where each of these two ratios comes from, how it is calculated, and what it tells us. These two are the most frequent figures on the trading board and underpin many decisions investors make. EPS is each single share's slice of the company's net profit, spreading that profit across all of the shares. The P/E ratio tells us how many units of price the market will pay for each single unit of annual profit. To find EPS, we simply divide the company's net profit for the period by its total number of shares. To find the P/E, we then divide the current share price by earnings per share, that very same EPS figure. The trailing version rests on the real profit of the past twelve months, while the forward one rests on an estimate. Imagine a company with a known profit and share price; in this hypothetical example, the P/E comes to twelve. Now if a hypothetical positive adjustment lifts profit while the price stays flat, the ratio falls to eight. In Iran, companies' official financial statements are published on a system called Codal, open to everyone. Since the thirtieth of December two thousand seventeen, mandatory profit forecasts were removed and replaced. Keep one common mistake in mind: a low P/E does not always mean a cheap stock, and it can be a warning sign. The second mistake is comparing old and new EPS directly after a capital increase; the denominator has changed. Under high inflation, nominal profit swells, EPS grows, and the P/E looks deceptively small and cheap to us. So always read the P/E alongside profit quality, its durability, and the bank deposit rate, never on its own. The full lesson is on Sahmino.com; save this video and take the time to review it one more time later.