# Difference Between EPS And PE Ratio

The main difference between EPS (Earnings Per Share) and P/E (Price-to-Earnings) Ratio is that EPS measures a company’s profitability per share, while P/E Ratio evaluates the market value of a share relative to its earnings, indicating how much investors are paying for each rupee of earnings.

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## What Is PE Ratio?

The Price-to-Earnings (P/E) Ratio is a financial metric used to evaluate a company’s stock price relative to its earnings per share (EPS). It indicates how much investors are willing to pay per rupee of earnings, helping assess if a stock is overvalued or undervalued.

The P/E Ratio is calculated by dividing a company’s current share price by its EPS. A high P/E might suggest that a stock is overvalued, or investors expect high future growth. Conversely, a low P/E could imply undervaluation or skepticism about future growth.

This ratio helps investors compare companies within the same industry. A company with a higher P/E than its peers might be viewed as more growth-oriented, while a lower P/E could indicate a value investment opportunity or potential issues.

For instance, if a company’s stock is trading at ₹200 and its EPS is ₹20, the P/E ratio would be 10 (₹200/₹20). This means investors are willing to pay ₹10 for every ₹1 of the company’s earnings, reflecting their valuation of the stock.

## What Is EPS?

Earnings Per Share (EPS) is a key financial indicator that measures a company’s profitability on a per-share basis. It’s calculated by dividing the company’s net income by its total number of outstanding shares, providing insight into the company’s efficiency in generating profits for shareholders.

EPS, a crucial measure for investors, calculates a company’s profit allocated to each share. It’s derived by dividing net income by the total shares outstanding. A higher EPS indicates better profitability, making it a valuable tool for evaluating a company’s financial health.

EPS helps investors compare companies within the same industry, understanding which are more profitable. It’s often used in conjunction with other financial metrics for investment analysis, providing a clear picture of a company’s performance from a shareholder’s perspective.

For example, if a company reports a net income of ₹10 million and has 1 million outstanding shares, its EPS would be ₹10 (₹10 million divided by 1 million shares). This means each share is associated with ₹10 of the company’s profits.

## EPS Vs PE Ratio

The main difference between EPS and P/E Ratio is that EPS (Earnings Per Share) measures a company’s profit allocated per share, while P/E Ratio (Price-to-Earnings) assesses the stock price relative to its earnings, indicating how much investors are paying for each rupee of earnings.