Earnings Per Share “ EPS:Earnings per share (EPS) is a company's net profit divided by the number of common shares it has outstanding. EPS indicates how much money a company makes for each share of its stock, and is a widely used metric to estimate corporate value. A higher EPS indicates greater value because investors will pay more for a company's shares if they think the company has higher profits relative to its share price. Cost of Equity:The cost of equity capital may be defined as the minimum rate of return that a firm must earn on the equity-financed portion of an investment project in order to leave unchanged the market prices of its stock. Earning Price (E/P) Approach to calculate Cost of Equity. ?Under this approach, earning per share will actually determine the market price per share. In other words, the cost of equity capital is equivalent to the rate which must be earned on incremental issues of ordinary shares so as to maintain the present value of investment intact, i. e. the cost of equity capital is measured by the earning price ratio. According to this approach, the cost of equity capital is:Cost of Equity (Ke) = E1/P0Where: E1 = Expected earnings per share for the next year P0 = current market price per share E1 can be calculated as (Current EPS) * (1 + growth rate of EPS)Therefore, As per earning per share approach cost of equity can be calculated as (where g is growth rate) is EPS(I+g)/current market price.