Measures of Profitability
Earnings Per Share (EPS):
Earnings per share measures how much of a company’s earnings belong to each share of stock. EPS indicates a company’s profitability. It is also used as the denominator in the price-earnings ratio.
Price to Earnings (P/E) Ratio:
The P/E ratio measures the price investors are willing to pay for a stock per dollar of earnings. It is used by analysts to determine whether a stock is over or undervalued. Stocks with higher P/E ratios indicate that investors expect higher future profits, and are willing to pay a high price for these expectations. Stocks with high P/E ratios tend to be riskier investments. Stocks with lower P/E ratios are often called value stocks, wh