Determining The Market Value Of The Enterprise (EPS, P/E, Price Dividend Ratio)

Stock indices are designed to facilitate our work when selecting stock exchange companies. When using stock market indicators, one should also remember about the pitfalls that lie in wait for every investor. The company may hide exceptional events in its report, and we also need to know that the report could have been prepared in a different method than provided for by the standards. In addition to the indicators described below, there are thousands of them on the market. In this article, we wanted to present you only the more popular ones.

Earnings per share (EPS)

Earnings per share (EPS) is a company's net profit divided by the number of ordinary shares in issue.

EPS indicates how much money a company makes for each share of its stock and is a commonly used measure for estimating a company's value.

Higher EPS means more value because investors will pay more for a company's stock if they believe the firm is out of line with the share price.

Earnings per share is calculated as net income (also known as earnings or earnings) divided by available shares.

Earnings per share is one of the most important metrics used in determining the absolute profitability of a company. It is also the main component in calculating the Price Profit (P/E) ratio, where the E in P/E relates to EPS.

If you are interested in trading stocks or investing EPS is one of many indicators that you can use to select stocks.

When looking at EPS to make an investment or trading decision, be aware of some possible drawbacks. For example, a company can cheat its EPS by buying back shares, reducing the number of shares outstanding and increasing the number of EPS while earning the same level. It is mean that earnings per share can be distorted, both intentionally and unintentionally, by several factors.

P/E ratio

P/E ratio, or price-to-earnings ratio, is a quick way to see if a stock is undervalued or overvalued.

It says about the attractiveness of a given company and is important information for investors.

A low level of the ratio may suggest that the investment is profitable, as the company is making good profits with a relatively low market valuation. Higher ratios are considered significant prospects for the company's development, however, too high a price may suggest speculation when the company has almost no profits, so caution is advised in interpretation.

It should be compared to the data of companies from the industry. As stocks rise, the indicator naturally rises.

Price Dividend Ratio

The dividend is money paid to shareholders. This is an important factor by which the condition of the company is assessed and one of the indicators of the capital market.

The formula for the indicator is quite simple, you need to multiply the share price by the dividend paid per share.

The counter is easy to find on the stock quotes of the stock market. The denominator, on the other hand, can be found in the company's cash flow statement. It is worth remembering that companies have different dividend payment policies, some do it once a year, others quarterly, etc. When comparing companies, you have to take this into account.

Dividend rate

It is not difficult to calculate the dividend rate by substituting the data for the following formula:

Dividend Rate is capital market indicator tells about what income the investor receives (or will receive in the future). The higher its value, the greater the shareholder earns on invested capital. However, when it is too high, it means that a large percentage of the profits are paid out, and therefore the company does not invest as much in its development as it could. It happens that in the long run it will act to the detriment of this economic entity.

Source: investopedia.com, https://economictimes.indiatimes.com/