value
Per share is what counts
The rule
Your share is one slice of the pie. If the company makes more slices, your slice shrinks even when total profit grows.
Where it flips
But some new shares raise money that earns a lot and lifts value later. The fix is to ask if what the new shares bought earns more than the slice they cost you.
A company can show rising total profit and still leave you poorer. How? If it makes many new shares faster than profit grows. Every new share, staff option or converted bond cuts the pie into more pieces. So always look at profit per share, not just total profit. And count the shares that could exist soon, not just today's shares.
A worked example
Profit rises from ₹100 crore to ₹120 crore, which is up 20%. But heavy staff options push the share count up 35%. So profit PER share actually falls. The headline looked happy, but the owner's slice got smaller. [illustrative]
How to spot it
- ·total profit up, but per-share flat or down
- ·lots of options or convertibles waiting
- ·share count rising year after year
Benjamin Graham · The Intelligent Investor