Disadvantages of using EPS ratio





Disadvantages of using EPS:

EPS (earning per share) ratio tells the current profitability of the company (or its shares rather), It does not tell us anything about the future of the company. For example, when the company sold an asset it held, say one of its buildings, it results in a sudden jump in EPS. Likewise, when the company purchases an asset, for example a production plant, it results in a sudden drop in its EPS.
It is often difficult to determine which type of EPS the company reported, and the financial figures of the company should be dealt with in depth, as otherwise it can be quite misleading.

Conclusion to EPS:

There are many types of the Earnings per Share methods of valuing the outstanding stocks of public companies. When they are observed, care should be taken, and the investor who uses it should make sure that he or she is certain about which type is being used, as the different types can lead to very different conclusions, and should be interpreted differently. There might also be some assumptions that you would exclude when you want to interpret it.

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