Why Balance Sheet, P/E, and EPS Matter – Sandeep Kumar Chaudhary Explains Simply

learnwithopen .ai

Thu, 16 Oct 2025

In Nepal’s fast-evolving financial market, where investors often focus on short-term price fluctuations and speculative tips, few truly understand the core fundamentals that determine a company’s real worth. According to Sandeep Kumar Chaudhary, Nepal’s first complete technical and fundamental analyst, the key to successful investing is not in predictions or rumors, but in understanding the three pillars of valuation: the Balance Sheet, Price-to-Earnings (P/E) Ratio, and Earnings Per Share (EPS). Through his educational platforms — MarketMind Investment Group and NepseBook — Sandeep has simplified these complex concepts into practical lessons that help every investor, from beginners to professionals, evaluate companies like analysts do.

He explains that the Balance Sheet is the foundation of any company’s financial health. It tells you what a company owns, what it owes, and what it’s truly worth. Sandeep describes it as “the financial DNA of a business.” On one side are assets — such as cash, loans, property, and investments — showing where the company has placed its money. On the other side are liabilities and shareholder equity, which reveal how those assets were funded, either through borrowing or ownership. A strong balance sheet means the company can survive economic shocks, pay its debts, and continue operations even in tough times.

For example, in the Nepal Stock Exchange (NEPSE), when Sandeep analyzes banks or insurance companies, he pays close attention to metrics like Capital Adequacy Ratio (CAR), Core Capital, and Debt-to-Equity Ratio (D/E). A higher CAR indicates the bank has enough buffer to absorb risks, while a low D/E ratio means the company isn’t heavily dependent on loans. “If the balance sheet is weak,” he says, “no amount of technical setup can save the stock in the long run.” That’s why he always begins his analysis from the balance sheet — to understand how solid the company really is before moving to earnings or price action.

Next, he focuses on Earnings Per Share (EPS) — which he calls “the pulse of profitability.” EPS simply tells you how much profit a company generates for each share it has issued. The formula is straightforward:

EPS = (Net Profit – Preference Dividends) ÷ Number of Ordinary Shares

Sandeep explains that a higher and consistent EPS shows that a company is efficiently generating profits relative to its share base. In NEPSE, banking and hydropower companies with steady EPS growth are often the ones that declare regular dividends and bonus shares. He also cautions investors to look for sustainable EPS, not temporary spikes caused by extraordinary income or revaluation gains. “Consistency,” he says, “is what separates a good company from a lucky one.”

EPS, according to Sandeep, also serves as a signal for management performance. When EPS rises steadily, it reflects good cost control, stable operations, and management discipline. Conversely, falling EPS can be an early warning sign that something is wrong — rising expenses, weaker margins, or slowing business growth. For long-term investors, monitoring EPS over several quarters helps forecast future dividend potential and overall stock stability.

After understanding the balance sheet and profitability, Sandeep turns to the Price-to-Earnings (P/E) Ratio, which he describes as “the investor’s measuring scale.” The P/E ratio shows how much investors are willing to pay for each rupee of a company’s earnings. It is calculated as:

P/E Ratio = Current Market Price ÷ EPS

A lower P/E ratio can indicate undervaluation — meaning the stock might be cheap relative to its earnings — while a very high P/E may suggest overvaluation, often driven by market hype or speculation. However, Sandeep warns that there’s no single “perfect” P/E number. Instead, he compares the P/E ratio with sector averages and company growth rates. For instance, a bank with a P/E ratio slightly higher than the sector average might still be attractive if its earnings are growing rapidly.

He simplifies this concept beautifully: “The P/E ratio tells you how optimistic investors are about the future. The higher it is, the more faith they have — but also the higher the expectations.” In his view, successful investing requires finding the balance — buying quality companies when their P/E ratios are low but EPS growth is strong. This combination creates the perfect setup for both safety and growth.

Sandeep also highlights how these three indicators — Balance Sheet, EPS, and P/E — are interconnected. The balance sheet reveals the company’s strength, the EPS shows its profitability, and the P/E ratio reflects the market’s perception of its future. Together, they form the foundation of fundamental analysis. Ignoring any one of them leads to incomplete judgment. For instance, a company might have high EPS but an over-leveraged balance sheet, which increases risk. Similarly, a low P/E might seem attractive, but if EPS is falling and assets are weak, it’s a trap, not an opportunity.

To make it easier for Nepali investors, Sandeep often uses real NEPSE examples in his training sessions. He takes quarterly reports of banks, hydropower, and insurance companies, explaining how EPS trends align with dividend declarations and how P/E ratios fluctuate with market sentiment. For instance, when banks publish strong quarterly EPS figures, their P/E ratios often expand as investor optimism grows. But when NRB tightens directives — reducing profit margins — EPS falls and P/E ratios contract, causing stock corrections. He shows how understanding these relationships allows investors to anticipate market movements before they happen.

Sandeep’s approach goes beyond formulas — it’s about mindset. He teaches that every investor must think like an analyst, not a gambler. The goal isn’t to chase short-term gains, but to identify companies with solid balance sheets, growing EPS, and reasonably priced valuations. These are the companies that reward patience with steady capital appreciation and consistent dividends.

He summarizes his philosophy in simple words:
“The Balance Sheet shows the company’s strength, EPS shows its performance, and P/E shows the market’s belief. If all three align, you’ve found a winner.”

Through MarketMind Investment Group and NepseBook, Sandeep Kumar Chaudhary continues to empower Nepali traders to move beyond speculation and master financial logic. His simple, step-by-step explanations have helped countless investors understand what truly drives value in the stock market. Under his mentorship, reading financial data is no longer intimidating — it’s a strategic tool for success.

He often concludes his financial literacy sessions with one powerful reminder:
“In NEPSE or anywhere in the world, prices can lie — but financials never do. Learn to read them, and the market will reveal its secrets.”