# EPS and PE ratio - Interpretation

Data of a company is as follows
|fv|2|
|eps|23.48|
|pe|30.06|
|cmp|705.9|

Understanding:- (Assume the entire company is owned by promoters only and they have injected capital at 2 per share)

EPS - represents 23.48 for each share with a fV of 2.
CmP - The current market price is 705.9 and if I wish to invest in this company, I need to pay 30.06 times of earning per share.
So can I divide 23.48/30.06 = 0.78 and at 705.9 per share, the earning is 0.78.

Apologies if this is stupid and not worth answering.

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Pe = cmp / eps
So by doing 705.9/23.48, we get 30.06 which is pe rightâ€¦

In laymanâ€™s term means to earn every 1 Re. 30.06 needs to be infused.

Whatâ€™s the confusion

You cant divide like that coz essentially you are doing 23.48*23.48/705 . Which is a double count

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Double countâ€¦? Some real confusion now
As the age old formula of speed = Distance /Time be it on moon or mars or earthâ€¦
Similarly Pe = Cmp/epsâ€¦ be it itc or adani ent or teslaâ€¦ !

Yes only confusion that may occur to an investor is whether to consider backward pe which is derived as per past or current earnings or forward pe which is estimated earnings based â€¦ generally in bull markets its a tool to attract new buyers by showing 2-3 years ahead pe based on estimated increased growth in earnings /Cmp

I hope itâ€™s clear nowâ€¦

I was referring to this , can I divide 23.48/30.06 = 0.78

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No u canâ€™t because this division will not mean anything as far as i know. You may divide eps /Cmp to get earnings yield. So accordingly 23.48/705.9= 0.0332 or 3.32% yield. Higher the yield better the company or investment and may justify extra risk you may want to take vis a vis investing in a bond with say 1.5% yield.

Hi Vipul and Suri

In the first place, Vipul and Suri, thank you for responding to my query. This is truly appreciated.

Let me try and clear my confusion.

EPS of 30.06 as per my limited understanding is that for every 2 Rs i.e the Face Value of the company, the return is 30.06. Is this correct?
If I am investing in this company at 705.9 what would be my EPS.
So, I thought I can divide 23.48/30.06 = 0.78. If I invest in this company at 705.9 per share, my earnings would be 0.78.

Once again, thank you for your time and patience.

See actually even if fv would have been 10 instead of 2 in your eg. , Still the pe would stay same at 23.48 because, total earnings of the company remaining same, recalculated Cmp for fv = 10 would be 705.9/5 = 141.18, eps would be 30.06/5 = 6.012.
So 141.18/6.012= 23.48.

So pe doesnâ€™t depend on fv but yes eps does as it is quotient of total earnings by total no. Of shares of company. Lesser the fv, higher the no. Of shares and vice versa.

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