UNDERSTANDING THE RELATIONSHIP BETWEEN EPS AND STOCK PRICES

Abstract

EPS is a typical phrase for determining a company's profitability. EPS is defined as the amount of earnings per outstanding share of a company's common stock. EPS, or earnings per share, is a frequently used indicator for determining business value. A higher EPS suggests more value since investors would pay more for a company's stock if they believe it has higher earnings than its share price. The relationship between Earnings per Share and the stock prices of three banking companies like SBI, HDFC and ICICI , three IT companies such as TCS, Infosys and HCL, three textile companies ,Grasim, Raymonds, Bombay Dyeing etc are examined. The relationship between earnings per share and stock prices is exposed using the Durbin-Watson Regression. The findings of this study will be of assistance to the future researchers and investors who wishes to invest in stock market for future earnings.