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metrics explained

When it comes to valuing stocks, two of the most commonly used metrics are earnings per share (EPS) and price-earnings ratio (P/E ratio). Both EPS and P/E ratio provide insights into a company's profitability and are important factors to consider when making investment decisions. However, it's important to understand the difference between EPS and P/E ratio and how each one is calculated.

Earnings per share (EPS) is a measure of a company's profitability. EPS is calculated by dividing a company's net income by the number of shares outstanding. EPS is considered to be a key metric by investors and analysts when assessing a company's stock.

The price-earnings ratio (P/E ratio) is a measure of a stock's valuation. P/E ratio is calculated by dividing a stock's price by the company's EPS. P/E ratio is often used to compare different stocks or to compare the stock of a company to its peers.

EPS is calculated by dividing a company's net income by the number of shares outstanding. For example, if a company has a net income of $100 million and there are 10 million shares outstanding, the EPS would be $10.

P/E ratio is calculated by dividing a stock's price by the company's EPS. For example, if a stock is trading at $100 and the EPS is $10, the P/E ratio would be 10.

The key difference between EPS and P/E ratio is that EPS is a measure of a company's profitability while P/E ratio is a measure of a stock's valuation. EPS is calculated by dividing a company's net income by the number of shares outstanding. P/E ratio is calculated by dividing a stock's price by the company's EPS.

EPS is considered to be an important metric by investors and analysts when assessing a company's stock. EPS provides insights into a company's profitability and is a key factor in determining a stock's price.

P/E ratio is a measure of a stock's valuation. P/E ratio is often used to compare different stocks or to compare the stock of a company to its peers. P/E ratio can also be used to assess whether a stock is undervalued or overvalued.

One of the key limitations of EPS is that it does not take into account the number of shares outstanding. For example, a company with a net income of $100 million and 10 million shares outstanding would have an EPS of $10. However, if the company had 100 million shares outstanding, the EPS would be $1.

Another key limitation of EPS is that it does not take into account the company's debt. For example, a company with a net income of $100 million and $50 million in debt would have an EPS of $10. However, if the company had no debt, the EPS would be $20.

One of the key limitations of P/E ratio is that it does not take into account the company's debt. For example, a company with a net income of $100 million and $50 million in debt would have a P/E ratio of 10. However, if the company had no debt, the P/E ratio would be 20.

Another key limitation of P/E ratio is that it is based on historical data. For example, a company with a P/E ratio of 10 is trading at 10 times its earnings. However, if the company's earnings are expected to decline in the future, the P/E ratio may not be an accurate measure of the stock's valuation.

EPS and P/E ratio are two important metrics when it comes to valuing stocks. EPS is a measure of a company's profitability while P/E ratio is a measure of a stock's valuation. EPS is calculated by dividing a company's net income by the number of shares outstanding. P/E ratio is calculated by dividing a stock's price by the company's EPS.

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