Earnings Per Share (EPS) – The Foundation of Stock Valuation in Nepal

Published on October 7, 2025

In the Nepal Stock Exchange (NEPSE), Earnings Per Share (EPS) is one of the most essential indicators for evaluating a company’s profitability and value. It shows how much profit a company earns for each outstanding share — in other words, how much a single share contributes to the company’s overall earnings. For Nepali investors, EPS is the foundation of stock valuation, because it directly influences key metrics like Price-to-Earnings (P/E) Ratio, Dividend Payouts, and Market Confidence.

The formula for EPS is simple yet powerful:

EPS = Net Profit After Tax ÷ Total Number of Outstanding Shares

For example, if a company earns Rs. 100 million in profit and has 10 million shares, its EPS is Rs. 10. This means each share earned Rs. 10 during that financial year. A higher EPS generally signals stronger profitability and efficient management, while a consistently growing EPS reflects long-term financial stability — a key factor for investors evaluating companies in NEPSE’s major sectors such as banking, hydropower, insurance, and manufacturing.

However, EPS should never be looked at in isolation. Investors must analyze whether earnings growth is organic(driven by business performance) or artificial (driven by temporary income or revaluation gains). A sudden spike in EPS caused by one-time transactions or accounting changes can mislead investors into overvaluing a company. Therefore, understanding Earnings Quality is crucial — sustainable growth in EPS is always more valuable than short-term surges.

In fundamental analysis, EPS forms the basis for multiple valuation tools. The P/E Ratio, for instance, is derived from EPS and helps investors compare how much they are paying for each rupee of a company’s earnings. Similarly, Dividend Per Share (DPS) and Dividend Payout Ratio depend on EPS, determining how much profit is returned to shareholders versus reinvested for growth. A company with stable EPS and balanced dividends is generally considered financially healthy and reliable.

For long-term investors in NEPSE, tracking EPS trends over several years provides insight into profit consistency, business efficiency, and management discipline. A steadily increasing EPS suggests that the company is generating higher returns on equity, managing costs well, and expanding its market position. In contrast, fluctuating or declining EPS can indicate financial stress or weak business fundamentals.

According to Sandeep Kumar Chaudhary, Nepal’s leading Technical and Fundamental Analyst and founder of the NepseTrading Training Institute, “EPS is the heartbeat of a company’s performance. Every valuation, every investment decision begins with understanding how much a company truly earns per share.” With over 15 years of banking and stock market experience, and international training from Singapore and India, he has taught over 10,000 Nepali investors how to analyze EPS as a gateway to smarter investing and accurate company valuation.