CONCEPT OF EPS & PE( FORWARD AND TRAILING)

EPS( Earning Per Share)= Profit After Tax / Number of outstanding Shares

P/E(Price Earning Ratio) =Market Price / EPS

Trailing(TTM) EPS=

PIDILITE Mar-20
PAT 1102 CR
NO OF EQ SHARE 50.81 CR
EPS 21.68

This 21.68 is called the trailing (TTM) EPS. Trailing means past .

PIDILITE earns 21.68 rupees per share but we pay 21.68 * 62.55 = 1750, 80.72 times more
to buy 1 share from the market, that 80.72 is called the Price/Earnings (PE) ratio. This is
again trailing as 21.68 EPS is trailing.

Now lets us assume Next year the company is expected to earn 25% more which means
27 rupees (21.6 + 20%) per share as earning (EPS), then from next year's the PE becomes
cheaper.

If next year's EPS (expected) is to be Rs 27 per share and we are paying 1750 to buy the
share, the PE will become 1750/27 = 64.81 from 80.72 that means in a company, which is
expected to increase the earnings (EPS), will automatically have a lower PE the next year.

So in this case, FORWARD EPS: 27 & 65 is called forward PE.

But let us assume if company not able to achieve expected earning of 25%, so forward
expected EPS (earnings) will change. Today PIDILITE PE is 80.72 because of 21.68 as EPS,
we are expecting 27 as EPS and hence forward PE as 65 and hence buying it but say the
EPS next year comes at 18?

Which means PE then would be 97.22 (1750/18) vs your expectations of 64.81 and hence
it will suddenly start looking expensive again and we might can see a correction in stock.
HOW NIFTY P/E & EPS CALCULATED?
Nifty’s PE & EPS (trailing or forward) will be the weighted average PE & EPS of the 50
stocks the index is made up of. So if one stocks PE increases it has an increased impact
on the nifty PE and vice versa and same goes for EPS.

Current Nifty is 14,450(rounded off) and P/E is 40 approx ( as per NSE data available as on date)

NIFTY EPS P/E

16th Jan 361.25 40.00
2020-21 461.90 31.28
2021-22 616.00 23.46
2022-23 723.80 19.96

Nifty is currently trading at 31.28 times 1

1-year forward EPS

10 years average PE of Nifty is 19.9 and hence when FY23 PE is expected to be 19.96,
analysts say Nifty is discounting FY23 earnings.
earnings.We can say Nifty is trading at 57%
premium to FY21 EPS (31.28--19.9/19.9).

(Note :Earning
arning estimates are on basis of report by Prabhudas Liladhar )