| Definition |
Shows how much investors are willing to pay per ₹1 of earnings. |
Shows how much profit is earned per share. |
| Formula |
Market Price per Share ÷ Earnings Per Share |
Net Profit After Tax ÷ Total Number of Shares |
| Purpose |
Used to value a company and assess if a stock is overvalued or undervalued. |
Used to measure a company’s profitability on a per-share basis. |
| Interpretation |
Higher P/E means investors expect future growth; lower P/E may indicate undervaluation. |
Higher EPS means higher profitability for shareholders. |
| Type |
Valuation ratio. |
Profitability ratio. |
| Indicator Of |
Market expectation and stock valuation. |
Company’s actual earnings performance. |
| Investor Use |
Used to compare stock prices to earnings. |
Used to assess how much each share earns. |
| Effect of Share Price |
Directly affected by market price of the stock. |
Unaffected by market price; based on company’s net earnings. |
| Changes Over Time |
Changes with market sentiment and stock price movement. |
Changes with profit levels and number of shares. |
| High Value Means |
Stock is priced high relative to earnings; may suggest growth expectation or overvaluation. |
Company is generating high profit per share. |
| Low Value Means |
Stock may be undervalued or company may have weak future prospects. |
Lower profitability per share. |
| Used In |
Stock analysis, valuation comparisons, market outlook. |
Earnings reports, dividend decisions, internal performance tracking. |
| Relation to Each Other |
Depends on EPS to calculate the ratio. |
Is the denominator in the P/E ratio formula. |
| Example |
If share price is ₹200 and EPS is ₹20, then P/E = 10 |
If a company earns ₹10 lakh with 1 lakh shares, then EPS = ₹10 |
| Preferred Value |
Depends on industry; investors look for optimal P/E (not too high or too low). |
Higher EPS is generally preferred by investors. |
p/e ratio vs eps