STEP 1What one share earns: EPS
At the bottom of the income statement's staircase you find net income. But investors care less about the whole company than about the portion belonging to the single share they hold. It starts with dividing net income by the number of shares.
EPS is net income divided by the number of shares
(Earnings Per Share) converts the net income a company earned over one year into an amount per share. The fictional Robin Bakery earned net income of KRW 1.2 billion and has 2 million shares, so EPS is KRW 1.2 billion ÷ 2 million shares = KRW 600. This means a person holding one share of the company had KRW 600 of profit attributable to them over the year. They do not receive all of that KRW 600 as dividends. Robin Bakery (fictional) pays KRW 150 per share of it as a dividend and keeps the rest in the company as retained earnings to reuse.
Think of it as pizza: net income is the size of the whole pizza, and the number of shares is how many slices it is cut into. Cut into 8 slices, each slice is big; cut into 80, each is small. So even if net income grows, if the number of slices grows faster, the share of one slice (EPS) can actually fall.
You can't tell if it is expensive from the share price alone
Let's return to today's question. There is Robin Bakery with a share price of KRW 9,000 and a fictional company A with a share price of KRW 90,000. If A's EPS is KRW 9,000, the multiple of one year's profit that one share is priced at is 10x for A (90,000 ÷ 9,000) and 15x for Robin Bakery (9,000 ÷ 600). A's price per share is ten times higher, but relative to the profit it earns, Robin Bakery is actually trading at a higher price. The share price divided by EPS like this is .
EPS = net income ÷ number of shares · P/E = share price ÷ EPS · share price = EPS × P/ERobin Bakery (fictional): KRW 1.2 billion ÷ 2 million shares = KRW 600 · KRW 9,000 ÷ KRW 600 = 15x
The numerator is the net income belonging to the parent's shareholders
In Lesson 11 you learned that consolidated financial statements, which combine subsidiaries, split net income into the share of the parent's owners and the share. The numerator of EPS uses only . This is because the share of a subsidiary's other shareholders is not profit on our shares. This rule is also why the controlling-share EPS came out to KRW 630 in the Lesson 11 Robin Coffee scenario. In actual reports as well, the income statement splits the two shares in the 'attribution of net income' line and then lists earnings per share below it.
Quick checkIf Robin Bakery's net income grows to KRW 1.5 billion next year and the share count stays at 2 million, what is EPS? And what is the P/E if the share price stays at KRW 9,000?
EPS becomes KRW 750 and P/E becomes 12x. KRW 1.5 billion ÷ 2 million shares = KRW 750, and KRW 9,000 ÷ KRW 750 = 12x. If the price stays the same while profit grows, the P/E falls. To keep the same 15x, the share price would have to be KRW 11,250 (750 × 15).
STEP 2The denominator of EPS, and P/E
The denominator (number of shares) matters as much as the numerator (net income). What if the share count changes during the year? And which EPS do you use to calculate P/E?
The denominator is the 'weighted average' number of shares
If the number of shares rose or fell during the year, you cannot simply divide by the year-end share count. Net income was earned throughout the year, but newly created shares existed for only part of it. So accounting standards (K-IFRS 1033) require dividing by the , which averages the share count in each period weighted by the length of that period. bought back by the company does not circulate in the market, so it is excluded from this share count.
This is a hypothetical example. Dividing by the year-end count of 2.2 million shares gives KRW 545, and dividing by the beginning-of-year count of 2 million gives KRW 600, but the standard uses the weighted average that reflects the timing (about KRW 571).
Diluted EPS: including shares that may be added later
is calculated using the ordinary shares currently outstanding. But if there are 'potential ordinary shares' that could later become ordinary shares, such as convertible bonds (CBs), warrants, and stock options, the value recalculated assuming all of them became shares is . Diluted EPS is equal to or lower than basic EPS. If the gap between the two is large, it signals a big risk that the share count will grow and your slice will shrink, so check the CB and warrant issuance filings too. You can pre-calculate how much an issue would dilute ownership with the Dilution Calculator.
Share buybacks and cancellations raise EPS
Conversely, if the company buys its own shares on the market and cancels them (), the denominator shrinks. If Robin Bakery cancels 100,000 shares, net income stays at KRW 1.2 billion but EPS rises about 5% to KRW 1.2 billion ÷ 1.9 million shares ≈ KRW 632. It is like a pizza of the same size cut into fewer slices, so each slice is bigger. That is why share cancellation is counted as a form of shareholder return. However, you should also keep in mind that the company's assets and equity shrink by the cash used for the cancellation.
Which EPS is the P/E multiple applied to?
The inverse of PER, 1 ÷ PER, is called the . At a PER of 15x the earnings yield is about 6.7%, meaning you pay a share price of KRW 9,000 to buy KRW 600 of earnings a year. Recall how Economics Lesson 37 compared this number with deposit and government bond yields.
PER comes in two types depending on which EPS goes in the denominator. Calculated with the actual EPS of the past year it is ; calculated with the expected EPS of the coming year it is . If Robin Bakery's expected EPS for next year is KRW 690 (hypothetical), then at the same share price of KRW 9,000 the trailing PER is 15x and the forward PER is about 13x. If you do not check which one a PER in the news or a broker report is, you end up comparing different numbers for the same company.
See it: EPS and P/E calculator
Move net income, share count and share price. Press 'Cancel 100,000 treasury shares' and 'Convert 200,000 CB shares' to see how EPS and P/E change when the denominator changes. The dotted line is the starting state (EPS KRW 600).
EPSKRW 600Same as start
P/E15.0x
Earnings yield6.7%
Market capKRW 18 billion
This is a calculation for a fictional company. It is simplified by assuming the share count was the same all year, and it does not include the interest-expense savings from CB conversion.
Common misconceptions
- "A stock with a low share price is a cheap stock?"
- No. The share price is just the value of one slice. A stock split cuts the share price sharply, but the company's value and its P/E stay the same. Whether it is expensive is judged by P/E, the price relative to EPS.
- "A low P/E always means undervalued?"
- If one-off gains such as profit from selling land are mixed into EPS, the P/E looks temporarily low (Lesson 15). A company at the peak of its cycle, whose profit looks set to fall next year, will also show a low trailing P/E.
- "EPS went up, so the company earned more?"
- Not necessarily. Even if net income is unchanged, canceling treasury shares raises EPS, and even if net income rises, EPS can fall if a rights offering adds more shares. Check net income and the share count separately.
Quick checkIf all 200,000 CB shares at Robin Bakery turned into shares and the count was 2.2 million for the whole year, what are EPS and P/E (share price KRW 9,000)?
EPS is about KRW 545 and P/E is about 16.5x. KRW 1.2 billion ÷ 2.2 million shares ≈ KRW 545, and KRW 9,000 ÷ KRW 545 ≈ 16.5x. The company earns the same amount, but with 10% more shares each share's portion shrinks, and at the same share price it looks more expensive.
STEP 3Finding EPS in DART and reading P/E
Now it's time to find EPS in a real report. The company calculates EPS itself and puts it at the very bottom of the income statement, so once you know where to look you can read it right away.
Finding it yourself in DART: the bottom line of the income statement
Open again the annual report you looked at in Lesson 3. The screen below is the consolidated income statement from a large listed company's annual report (filed Mar 11, 2025, covering fiscal 2024). It is only an example for finding your way around and is not an investment recommendation.
![DART annual report screen: the net income attribution and basic/diluted earnings per share lines of the 2-2. Consolidated income statement]()
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- 1In the table of contents, open III. Financial Matters → 2. Consolidated Financial Statements → 2-2. Consolidated Income Statement.
- 2Check the unit. Amounts are in KRW millions, but the earnings per share line is separately labeled (Unit: KRW).
- 3Under 'Attribution of net income', look at the owners of the parent line. That is the share that forms the numerator of EPS.
- 4The basic earnings per share and diluted earnings per share at the bottom are EPS. This company's basic EPS for 2024 was KRW 4,950.
Source: FSS DART, Samsung Electronics annual report (filed Mar 11, 2025, rcpNo 20250311001085), III-2-2 consolidated income statement screen, captured Oct 8, 2026. This is a navigation example, not a stock recommendation.
If you want to see the denominator, follow the note number beside the income statement line to 'Earnings per share' in the notes to the consolidated financial statements. The notes of the same report set out in a table how KRW 29.5476 trillion of net income attributable to ordinary shares, divided by a weighted average of about 5.97 billion ordinary shares outstanding, gives KRW 4,950. This company also has preferred shares, so it calculates preferred-share EPS (KRW 4,951) separately and states that "there are no dilutive potential ordinary shares, so basic and diluted earnings per share are the same." By contrast, in the same company's Q3 2025 report (filed Nov 14, 2025), cumulative Jan–Sep basic EPS was KRW 3,724 and diluted EPS KRW 3,723, a KRW 1 difference. When the two numbers differ like this, check the notes to see which potential shares have arisen.
Three questions to ask when reading a P/E
First, which EPS is it? Check whether it is trailing or forward, whether it is the parent shareholders' share, and whether one-off gains are mixed in. Second, compared with whom? The 'normal range' of P/E differs by industry, so compare with companies in the same industry or the company's own past P/Es (covered in detail in Part 5). Third, what are interest rates now? As you learned in Economics Lesson 17, when rates are high the market tends to put a lower multiple on the same profit.
How to use it in investing
| When you see numbers like this | Try reading them like this |
|---|
| EPS rose but net income is unchanged | Check whether the share count fell, for example through share cancellation, using the weighted average shares in the notes |
| Net income rose but EPS fell | Check whether shares increased through rights offerings or CB conversion. Gauge the scale with the dilution calculator |
| Diluted EPS is noticeably lower than basic EPS | A sign of many potential shares (CBs, warrants, stock options). Check the issuance disclosure and the conversion price |
| P/E is far lower than the industry | First check whether one-off gains are mixed in (Lesson 15) and whether profit is expected to fall because the industry is at its peak |
| Forward P/E is much lower than trailing P/E | It means the market expects profit to grow. Follow up with quarterly results (Lesson 17) to see whether the expectation is right |
Not always. P/E loses meaning when earnings are negative or very small, and for banks and holding companies, given their industry structure, P/B is often used more. This lesson does not recommend buying or selling any particular stock.
Quick checkIf the share price of the company on the screen above were hypothetically KRW 59,400, what would the trailing P/E be based on the 2024 basic EPS of KRW 4,950?
12x. KRW 59,400 ÷ KRW 4,950 = 12x. The share price is a made-up number, and the actual P/E depends on that day's share price and which EPS (trailing or forward) is used.