How to Calculate Company Value Based on Earnings Per Share (EPS)

by Bryan Keythman

Earnings per share (EPS) is the amount of net income, or profit, a company generates for every share of common stock outstanding. A company's value is equal to its market capitalization, which is the combined market price of all of its outstanding shares of common stock. The price-to-earnings (P/E) ratio measures the relationship between a company's stock price and its EPS. You can calculate a company's market value using its EPS and P/E ratio.

Visit any financial website that provides stock information.

Type a company's name or ticker symbol into the text box required to search for a company's information. A company's ticker symbol is one or more letters that is an abbreviation of the company's name, or something related to its business. Click the "Search" button next to the text box to bring up the company's stock information.

Find on the website the company's P/E ratio, EPS and its number of shares outstanding (you can also find this information on most financial websites). For example, assume a company has a P/E ratio of 8, an EPS of $1.50 and 50 million shares outstanding.

Multiply the company's P/E ratio by the EPS to calculate the company's stock price per share. In this example, multiply 8 by $1.50 to get a $12 stock price per share.

Multiply the stock price by the number of shares outstanding to calculate the company's market capitalization. In this example, multiply $12 by 50 million to get a $600 million market capitalization.

Tip

  • Compare a company's market capitalization over different accounting periods. An increasing company value often means its stock price is rising.