|EPS of Arrow GreenTech|
Definition of EPS
Divide Net Profit with number of outstanding shares will give an EPS of 25.87. The value we got now is basically simple EPS.
What is Diluted EPS?
As most of you are aware, there is a stock category called Convertible Security. It is an investment that can be changed into another form. The most common convertible securities are convertible preferred stock, which can be changed into equity or common stock.
Now think about a scenario where all these Convertible Security are eventually converted to fully paid stocks. This will increase the denominator of our EPS equation and the outcome is low EPS.
Why Market Price of a Stock is always higher than EPS?
We can explain the rationale behind this price difference is explained with the help of the stock we mentioned above – Arrow GreenTech. The current market price of Arrow GreenTech is Rs.500.
|Arrow GreenTech – EPS from MoneyControl|
Because, if you are able to buy this stock @50, in just two years company can give back that 50. (EPS of 25* 2 Years). Now more people will come to know about this highly undervalued stock and they all are willing to buy the stock at a high price.
What is Cash EPS?
Cash EPS is operating cash flow divided by diluted shares outstanding. Cash EPS is considered as more important and accurate than other EPS numbers, because it shows the real financial strength of a company. Cash EPS is better because operating cash flow cannot be manipulated as it represents real cash earned, calculated by including changes in key asset categories, such as receivables and inventories.
Below given is the real data from cash cow nestle India, their EPS and CEPS
How EPS is Utilized by Companies
The EPS generated by a company can go one of two ways. They can be retained, reinvested in the company, or they can be distributed as a dividend. Always look for companies which pay you back the money as dividends or invest the money wisely to generate more topline growth.