What are EPS, PE and PB ?

When a company distributes its own profits among the total number of shares, it results in earnings per share (EPS). This metric is crucial for measuring the value of a share. Higher EPS indicates better earnings per share, while lower EPS suggests lower earnings.

Price to Earnings (P/E) Ratio:

- Less than 10: Considered risky.

- Between 10 and 20: Relatively safe on a comparative basis.

- More than 20: Considered risky.

The term "risky" in the context of P/E ratio implies that when investment managers fail to recognize the lower P/E ratio, the market price also decreases. Consequently, if a company reduces its profit, the EPS may also decrease even if the P/E ratio remains low. Therefore, it is essential to identify the reasons behind the decrease in P/E ratio.

Price to Book (P/B) Ratio: This ratio represents the proportion between a company's market price and its book value. A P/B ratio of less than 5 is considered safe. For example, if a company's book value is NPR 150 per share and the market price is NPR 750 per share, it suggests less risk when buying, as the market price is only five times the book value.