Key Ratios
~4 min read
Earnings Per Share (EPS)
Earnings Per Share (EPS): Profit Allocated to Each Share
Earnings Per Share is one of the most fundamental metrics in stock analysis. It tells you how much profit is attributable to each share of the company. As a shareholder, EPS represents your slice of the company's earnings.
The Formula
EPS = Net Profit / Total Number of Outstanding Shares
For example, if Equity Group reports a net profit of KES 40 billion and has 3.78 billion shares outstanding, the EPS is approximately KES 10.58.
Why EPS Matters
- Comparable metric — EPS allows you to compare the profitability of companies of different sizes. A company with KES 10 billion profit and 1 billion shares has the same EPS (KES 10) as a company with KES 5 billion profit and 500 million shares.
- Growth indicator — Rising EPS year after year indicates the company is growing its earnings. This is one of the strongest signals of a healthy business.
- Dividend foundation — Dividends are paid out of earnings. Higher EPS typically means the company can afford to pay higher dividends.
EPS Growth Trends
Look at EPS over the past 3 to 5 years to identify trends:
- Consistently rising EPS — Strong signal of a well-managed, growing company. Many top NSE companies like Safaricom and Equity Group have shown consistent EPS growth over the years.
- Flat EPS — The company is not growing. Not necessarily bad if it pays generous dividends, but limits share price appreciation.
- Declining EPS — Earnings are shrinking. This could mean increasing competition, rising costs, or poor management decisions. Investigate the cause.
What Is Good EPS?
There is no universal "good" EPS number. A KES 2 EPS is excellent for a stock trading at KES 10 (P/E of 5) but unremarkable for one trading at KES 100 (P/E of 50). Always evaluate EPS in the context of the share price and the company's growth trajectory.