Earnings Per Share to ROE – Fundamental Metrics by Sandeep Kumar Chaudhary

learnwithopen .ai

Thu, 16 Oct 2025

In Nepal’s evolving stock market, where investors often focus more on rumors than research, Sandeep Kumar Chaudhary, Nepal’s most respected technical and fundamental analyst, has dedicated his career to teaching the science behind stock selection. One of the core lessons he emphasizes for every investor and trader is the importance of fundamental metrics — especially Earnings Per Share (EPS) and Return on Equity (ROE). These two simple yet powerful indicators help investors see what truly lies behind a company’s share price and whether it deserves long-term trust or not.

According to Sandeep Kumar Chaudhary, the first step to becoming a successful investor is to understand what these metrics actually represent. Earnings Per Share (EPS) is the foundation of profitability analysis — it measures how much profit a company earns for each outstanding share. In simpler terms, it answers the question: “How much money does the company make for me as a shareholder?” A higher EPS means the company is consistently generating profit, which often leads to a rise in investor confidence and, eventually, the stock price.

However, Sandeep stresses that EPS alone does not tell the full story. A company might have high earnings today but could be using excessive debt or facing operational inefficiencies. That’s where the second key metric, Return on Equity (ROE), becomes crucial. ROE measures how effectively a company uses shareholders’ funds to generate profit. It’s calculated by dividing net profit by total equity. In essence, it shows how efficiently the management is turning investors’ money into growth. A consistent ROE above 15% is considered a sign of a strong and well-managed company in the Nepali context.

In his training programs and market lectures, Sandeep Kumar Chaudhary teaches that both EPS and ROE must be analyzed together, not separately. A company with a high EPS but low ROE might not be utilizing its capital efficiently. On the other hand, a high ROE with low or inconsistent EPS could mean that the company is profitable but not growing steadily. The real strength lies in the balance — a company that maintains both consistent EPS growth and stable ROE over time is fundamentally sound.

He also highlights that these metrics should always be interpreted within industry context. For example, in the banking sector, EPS and ROE are influenced by Nepal Rastra Bank’s directives, such as capital adequacy and credit-to-deposit ratios. In hydropower, profitability depends on project completion and energy sales, so EPS may fluctuate more. Sandeep’s unique approach helps investors look beyond the numbers and understand why those numbers move — linking financial ratios directly to market conditions, liquidity, and regulatory policies.

Sandeep Kumar Chaudhary also integrates Price-to-Earnings (P/E) ratio and Dividend Yield analysis with EPS and ROE. He explains that if EPS is rising but the P/E ratio remains stable, the market is undervaluing the stock — a potential buying opportunity. Conversely, if the P/E ratio skyrockets without EPS improvement, it indicates speculation and overvaluation. Similarly, if a company maintains strong EPS and ROE while offering regular dividends, it reflects both profitability and shareholder-friendly management.

One of Sandeep’s key teachings is that EPS and ROE reveal management quality better than any presentation or advertisement ever could. A company that consistently increases these metrics without taking on excessive debt demonstrates sustainable growth and discipline. He encourages investors to analyze a company’s historical EPS and ROE trends over at least 3–5 years to evaluate performance consistency rather than making decisions based on short-term results.

Through his educational platforms, MarketMind Investment Group and NepseBook, Sandeep Kumar Chaudhary has helped countless investors decode these ratios using real NEPSE-listed companies. He walks students through financial statements, showing how to extract EPS and ROE data and compare them across companies and sectors. His goal is to help Nepali investors develop the analytical mindset needed to see beyond daily price fluctuations and identify companies with long-term wealth-building potential.

Sandeep also emphasizes qualitative factors that affect these ratios — such as management strategy, regulatory environment, and overall market sentiment. For example, a bank’s ROE might fall temporarily due to NRB’s new reserve requirements, but that doesn’t necessarily mean the company’s fundamentals have weakened. Understanding such nuances is what separates informed investors from emotional traders.

Ultimately, Sandeep Kumar Chaudhary’s approach to fundamental metrics bridges theory and practice. He teaches that while markets may move on emotion in the short term, over time, earnings and returns define true value. A company that delivers consistent EPS growth and strong ROE will always reward patient investors, no matter the market condition.

In his words, “Price may fluctuate every day, but value grows with earnings. When you learn to read EPS and ROE, you stop guessing and start understanding.”