What is Profit&Loss (P&L) Statement ?

Definition : Also known as Income statement, is a financial statement which shows expenses and revenue of a company during a particular period, usually a fiscal quarter or year.
Read : What Is Balance Sheet ?
Income Statement helps to convey the status of a company i.e. Company is making profit or suffering losses. It is very important to read Income Statement of a company before investing, both of recent and past years.
Note : Revenue : Total amount received from sales of goods and services. Expenses : Total amount spend in producing final product or service.
Structure of P&L Statement  Income Statement is divided into Five main section - Net sales, Cost of Goods Sold, Gross Margin, Operating Expenses and Net Profit Before & After Income Tax (Or Net Loss in case of Loss).
Net Sales : It is the sum of Gross sales excluding its returns, allowances and discounts.Cost Of Goods Sold : Amount of money used to produce the final product. For example cost of inventory, merchandise purchased…

Definition of Earning Per Share - EPS

Earning per share (EPS)

Definition : Earning per share is defined as the portion of company’s profit allocated to each outstanding share of Common Stock. In common words, it is a part of profit that a company earns from each issued share.

Formula : 

Eps = Net income ÷ Total No. Of Outstanding Share

  • Net income - Net Earnings (profit)
  • Outstanding Share - Shares issued by a company, calculated using 
  • No. Of Outstanding Shares = Market Capitalization ÷ Current Share Price
To calculate Eps more accurately, you can subtract dividend paid from net income :

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In most of the financial data, Eps are already stated by the companies, so you don’t need to calculate it. Many companies state eps with ‘TTM’ i.e. Trailing Twelve Months which means Eps of 12 months. But 12 month is not enough if you are analyzing to Invest, always check about 4-5 years of EPS. If a share has increasing Eps in 4-5 years then it is a good signal for Investors.
Biggest disadvantage of  Eps is, it never consider debt(loan) of the company so always try to know how the eps of a company is increasing (If Increasing), because many companies borrow huge debts form banks to grow their business. So always analyse on how efficiently the company is growing and Also take a good look at amount of debt that a company holds.

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Eps is generally considered as the most important variable in determining a share’s price and also it is a major component used to calculate P/E ratio.
You need understand that, never rely on only one factor while analyzing, Eps is just a part of financial data, do not come to a conclusion by only checking Earning per share. Always analyse as much as financial ratios and data you can.

Note : Companies of different sector have different earning patterns, growth rate , margins, etc so always compare Eps with companies of same sectors for e.g. Eps of pharma stocks with other pharma stocks or Eps of a oil & gas company with other oil & gas company, and so on.

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