GrowingGrass.
Back to articles

Measuring What You Own

Value InvestingNSEInvesting Basics

The previous article made a simple claim: when you buy a stock, you are buying a piece of business – its assets and its earnings. This article makes that claim practical. If you own a piece of a company's profits and a piece of its net worth, how do you measure the size of your piece? The answer lies in two numbers that every serious investor must learn to find and interpret: earnings per share and book value per share.

These are not complicated figures. They are not hidden. They appear in every company's published financial statements, and they can be looked up in seconds on freely available websites. Yet most stock buyers on the Nairobi Securities Exchange (NSE) overlook these figures and buy based on tips, on momentum, on the feeling that a stock is "going up". This approach is not investing, it is guessing. And factoring these two figures when making a purchase turns guessing into analysis.

Earnings Per Share

Earnings per share – usually abbreviated as EPS – tells you how much profit a company generated for each share of stock outstanding. The value is calculated by dividing the company's net income by the total number of shares. The formula is straightforward:

EPS = Net Income / Shares Outstanding

If a company earns Ksh. 10 billion in a year and has 1 billion shares outstanding, the EPS is Ksh. 10. That means each share you own has a claim on ten shillings of profit. Own a thousand shares, and your claim increases 1000-fold to ten thousand shillings of earnings for that year. A good example is KCB Group stock. In the financial year ending December 2024, KCB reported a net profit of Ksh. 61.8 billion with an EPS of Ksh. 18.70(KCB Group, 2025). If you own 1000 shares of KCB, your slice of the bank's annual profit is Ksh. 18700.

This number matters for a simple reason: earnings are the source of all shareholder value. Dividends come from earnings. Growth comes from reinvested earnings. A company that earns nothing has nothing to distribute and nothing to reinvest. Over time, the value of a stock will track its earnings power. A company that consistently grows its EPS will, in the long run, see its stock price rise. A company whose earnings decline will see its price fall, no matter how popular it once was.

EPS also allows you to compare companies of vastly different sizes. A bank earning Ksh. 60 billion sounds roughly equivalent to another earning the same amount – until you learn that one has far more shares outstanding than the other. KCB delivered EPS of Ksh. 18.70 in 2024, while Equity Group delivered EPS of Ksh. 12.34 for the same period(Group Holdings, 2024). Despite both banks generating profits in the same broad range, KCB delivered more earnings per unit of ownership. This distinction matters when you are deciding what price to pay.

Book Value Per Share

If earnings per share measures your profits, book value per share measures your share of the assets – or more precisely, your share of what would remain if the company sold everything and paid off all its debts. Book value per share – abbreviated as BVPS – is calculated by dividing shareholders' equity by the number of shares outstanding.

BVPS = Shareholders' Equity / Shares Outstanding

Shareholder's equity is what remains after subtracting all liabilities from all assets. It is the accounting net worth of a business. Divide that value by the number of shares, and you know what each share would theoretically be worth if the company liquidated today, sold everything, paid off all debts, and distributed the remainder to shareholders.

Take our banking examples again. KCB Group reported shareholder's equity of Ksh. 274.9 billion at the end of 2024(KCB Group, 2025). With approximately 3.21 billion shares outstanding, the book value per share works out to roughly Ksh. 86. Equity Group reported shareholders' funds of Ksh. 234 billion with 3.77 billion shares outstanding, giving a book value per share of approximately Ksh. 62(Group Holdings, 2024). These figures tell you what each share is worth on the company books – a baseline against which to judge the market price.

BVPS provides an anchor. A stock trading at Ksh. 30 when its book value is Ksh. 60 is trading below its net asset value – you are paying fifty cents for every shilling of assets. A stock trading Ksh. 120 when its book value is Ksh. 60 is trading at twice its net asset value – you are paying two shillings for every shilling of assets. Neither situation is automatically good or bad, but the relationship tells you something important about what the market expects.

What these numbers tell you

EPS tells you what the company is earning for you right now. It is a measure of current profitability. A company with high and growing EPS is generating wealth for its shareholders. A company with low or declining EPS is not. BVPS tells you what the company has accumulated for you over time. It is a measure of net worth. A company with high book value has substantial assets backing each share. A company with low or negative book value has little cushion if things go wrong. Together, these two numbers anchor any serious attempt to value a stock. They tell you what you are actually getting when you buy a share; a claim on current profits and a claim on accumulated assets. The next question – and the subject of the next article – is how to combine these numbers into a single estimate of what a share is worth. That is where Benjamin Graham's formula comes in.

For now, the task is simple. Pick any company on the NSE. Find its most recent annual report or look it up on the company's site. Note the EPS and the BVPS. Then look at the current stock price. You now know more about that company than most of the people trading its stock.

This is the third article in a series on value investing for the Nairobi Securities Exchange. The next article will introduce the Graham Number — a formula that uses EPS and BVPS to calculate a reasonable price ceiling for any stock.

References

Disclaimer: This article is for educational purposes only and does not constitute financial advice. Investing in securities involves risk, including the possible loss of principal. Past performance does not guarantee future results. Readers should conduct their own research and consult with a qualified financial advisor before making investment decisions.