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Educational content, not investment advice.

Souq Dailyسوق ديليSouq Daily

Lesson 2 of 104:003 Sources

How to value a company: EPS, P/E and earnings

Video coming soon

Presented by NourIn Arabic, with captions. Other languages are coming.

Educational content, not investment advice. Nour explains how markets work. She never tells you what to buy or sell.

A share price alone tells you nothing about value. Start from earnings.

  • The income statement runs from revenue, minus costs and taxes, down to net income (the 'bottom line').
  • EPS = net income ÷ shares outstanding. Example: $10M ÷ 5M shares = $2.
  • P/E = share price ÷ EPS. At $30 and EPS of $2, P/E is 15. A higher multiple reflects higher growth expectations.
  • A low P/E is not automatically cheap; compare within the same sector and look at multi-year trends.

Quick check

Three questions. Pick an answer to see why.

0/3

  1. 1.A company earns $10 million net income and has 5 million shares. What is its EPS?

  2. 2.A share trades at $30 and EPS is $2. What is the P/E?

  3. 3.Two companies both have EPS of $2; one has a P/E of 30. What does the higher multiple usually signal?

Sources

Every fact in this lesson is backed by the sources below.

  1. 1.SEC – Beginners' Guide to Financial StatementsIncome statement structure; net income as the bottom line; EPS = net income ÷ outstanding shares
  2. 2.Nasdaq Glossary – Price-earnings ratioP/E = price ÷ EPS (past 12 months); higher multiple = higher growth expectations
  3. 3.Nasdaq Glossary – Earnings per shareEPS definition and worked example

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