Earnings Per Share (EPS) is considered as a reflection of the financial performance of a company. EPS shows how much profit per share has been generated by a company in a particular financial year. It’s a very popular tool among investors to trade in the stock market. The higher the EPS, the higher is the company’s profitability that will be allocated amongst individual share of the company, and thus more buyers would be willing to invest in the company.


The most basic type of EPS is calculated by dividing the Net Income of a company by its Total Number of Outstanding shares.

The formula would be

EPS = (Net Income after Taxation – Total Dividends) / Total Number of Outstanding Shares

Another form of EPS, and perhaps more refined form, which also takes into consideration stock options, convertible preferred shares and warrants etc. that could increase the number of outstanding shares. The EPS thus obtained is known as Diluted EPS.

The formula would be

Diluted EPS = (Net Income after Taxation – Total Dividends) / (Total Number of Outstanding Shares + Dilutive Shares)

The basic and diluted EPS are published by the company as part of their financial statements.


For the purpose of analysis, EPS data on 1st January of each year is taken for the last 18 years. As can be observed from the chart, the EPS trend has remained very healthy for most years. Except for 2010, 2016, and 2021,

the data has shown positive growth. In absolute terms, EPS peaked out in January 2020 with a value of around 430. Also, January 2021 has shown a maximum decline in EPS, that is from 430 to 363.6, which is a minus18.3% decline.

If we look at the EPS growth rate, only in January 2010, 2016 and 2021 EPS showed a negative growth rate of -1.6%, -5.8%, and -18.3% respectively. Maximum growth has been observed in January 2006, which was 27.3%. The year 2005 was quite close with a 24.5% growth rate.

Historically the average EPS growth rate between January 2003 and January 2021 comes at around 8% with maximum growth skewed at the first 5 years (2004-2008). The average growth during this time was around 19.6% (see chart), which has been the maximum during any of the remaining 5 years blocks. The average growth rate in the next 5 years (2009-2013) came down at 6.7%. In the next 5 years (2014-2018) average growth rate was only 3.9%. In the last 3 years (January 2019-January 2021), the average growth rate declined to -3%.


Therefore, during the last 18 years, although there has been a huge growth in absolute terms yet the 5 years combined average growth rate has been on the decline and is currently negative as per the data available. However, we still need data for the next 2 years to come to a more accurate conclusion.


As mentioned earlier EPS reflects the financial performance and attracts investors which have been looking for growth. Nifty, which is a group of 50 major listed companies of India, has seen an enormous run in the past 18 years, that is 132% growth. Just by looking at the chart below, it’s quite clear that if we take only absolute values, then there is a positive correlation between the Index and the EPS. This means that as the EPS rises, the index rises. However, there are some exceptions, the most recent has been the January 2021 figures. According to the data, EPS declined by 18% but the index has been showing an upward trend. The contrast has been so powerful that the index has shown a surprise bull run of more than 15% in the last year.

This picture changes if we take the 5 years the combined growth rate of the index and EPS.

It can be observed from the chart that there has been a decline in the 5-year growth rate of EPS but the Index had not been showing any sign of weakness in the growth. If we take only EPS into consideration, then as per theory there should have been a declining trend in the Index too.


So, perhaps there are some other significant forces beyond EPS, like abundant liquidity in the emerging markets, which have been acting as a driving force behind the bull run in Nifty. Or we can say that perhaps absolute numbers is all that investors have been looking at.

I would leave this topic open for discussion and put more light upon other driving forces such as the Price to Earnings ratio in the future.