Listed companies in Nepal report every quarter of the fiscal year, which runs from Shrawan to Ashadh (mid-July to mid-July). The profit in a quarterly report is usually year-to-date: the first quarter covers three months, the second six, the third nine and the fourth all twelve. An earnings-per-share figure worked out from a third-quarter report is therefore nine months of earnings — and comparing it with a full year, or dividing today's price by it, understates the company by a quarter.
Putting a period on a twelve-month footing
Annualising scales the year-to-date figure up to a full year, on the assumption that the rest of the year earns at the same rate:
Annualised EPS = year-to-date EPS × 12 ÷ months covered
| Report | Months covered | Multiply by |
|---|---|---|
| First quarter | 3 | 4 |
| Second quarter | 6 | 2 |
| Third quarter | 9 | 4 ÷ 3 |
| Fourth quarter | 12 | 1 |
A worked example
A bank with Rs 10 billion of paid-up capital has 100 million shares of Rs 100 each. Its third-quarter report shows a nine-month net profit of Rs 1.2 billion.
- EPS for the nine months: Rs 1.2 billion ÷ 100 million shares = Rs 12.00
- Annualised EPS: Rs 12.00 × 12 ÷ 9 = Rs 16.00
At a market price of Rs 400, the price-to-earnings ratio on the annualised figure is 25. On the nine-month figure it would read 33.3 — a stock that looks a third more expensive than it is.
When annualising misleads
Annualising is a projection, and it is only as good as the assumption that each month earns the same. Three cases break it:
- Seasonal businesses. Run-of-river hydropower generates most in the monsoon, and most of the monsoon falls in the first quarter of the fiscal year. A first-quarter result multiplied by four overstates the year.
- One-off items. A gain on the sale of an investment or a large write-back lifts one period. Scaled up, it becomes a year of gains that will not recur.
- Balances, not flows. Only figures earned over time are annualised. Book value per share, total assets or deposits are balances on a date — they are never multiplied up.
A trailing-twelve-month figure — the last four quarters added together — avoids the projection altogether, at the cost of mixing two fiscal years. Portexa shows the quarter, year-to-date and trailing-twelve-month views side by side on each company's analysis page.
How Portexa shows EPS
On Portexa, EPS is calculated from the statement's own lines — net profit over the shares in issue — and annualised the way NEPSE reports state it. The EPS the company printed is shown beside it as the printed figure, never in its place, so a typing error or a different share count in a report is visible rather than hidden. The price-to-earnings ratio on the Fundamentals pages and the stock page uses the same annualised figure.