What is the difference between basic and diluted EPS?

Basic EPS uses current shares. Diluted EPS adds potential shares from options and convertibles, so it is lower or equal.

Is a higher EPS always better?

Not on its own. Look at the trend, the quality of profits and the price you are paying for each rupee of earnings.

Why does EPS change after the IPO?

New shares increase the share count, so the same profit is spread over more shares.

EPS (Earnings per share)

Earnings per share, or EPS, is the portion of a company’s profit that belongs to each ordinary share. It is calculated by dividing the profit after tax attributable to equity shareholders by the weighted average number of shares outstanding. EPS is one of the most used measures in valuation because it links the profit to the unit you actually buy. Offer documents show both basic EPS, which uses the existing shares, and diluted EPS, which also counts potential shares from options and convertible instruments. Because an IPO changes the number of shares, compare the pre-IPO EPS with the figure after adding the new shares, as the post-issue EPS may be lower. A rising EPS over several years suggests growing profits, but the quality matters: profits boosted by one-off items or a low tax year can mislead. Use EPS together with the price to see how expensive the shares are, since dividing the issue price by EPS gives the price-to-earnings ratio. IPO Bulletin shows the latest EPS from the RHP in the key-financials block of each IPO page, along with the period it covers.

Example: A company earns a profit after tax of Rs 60 crore on 6 crore shares, so its EPS is Rs 10. At an issue price of Rs 150, the price-to-earnings multiple is 15 times.

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