EPS and P/E ratio are two key financial metrics that help investors assess a company's value and profitability.
- EPS tells you how much profit a company makes for each outstanding share of stock.
- Imagine a company has a total profit of $100 million and 10 million shares outstanding. Their EPS would be $100 million / 10 million shares = $10 per share.
- In simpler terms, EPS reflects how much money a company earns per share it has issued.
- The P/E Ratio compares a company's stock price to its EPS. It essentially tells you how much investors are willing to pay for every dollar of a company's earnings.
- P/E Ratio is calculated by dividing the stock price by the EPS (TTM - Trailing Twelve Months).
- In order to calculate EPS: Net Profit ($100.38B) / Outstanding Shares (15.33B), Hence EPS is $6.54.
- Let's say Apple's current stock price is $193.12 (as of June 10th, 2024).
- We have the EPS as $6.54.
- Therefore, Apple's P/E Ratio would be $193.12 / $6.54 = 29.52.
- A P/E Ratio of 29.52 for AAPL suggests investors are willing to pay $29.52 for every $1 of Apple's earnings.
- However, there's no magic "ideal" P/E Ratio. It can vary by industry and company growth stage.
- A higher P/E Ratio might indicate investors expect strong future growth for AAPL, even if the current earnings aren't as high.
- P/E Ratio is a good starting point for stock valuation, but it shouldn't be the only factor.
- You should also consider a company's growth rate, debt levels, and overall financial health.
- Comparing a company's P/E Ratio to its industry average can be more insightful than looking at the number in isolation.
By understanding EPS and P/E Ratio, you can gain valuable insights into how a company is performing and whether its stock might be a good investment opportunity for you.
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