Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Earnings Per Share (EPS)

Financial Accounting

14. Financial Statement Analysis

Ratios: Earnings Per Share (EPS)

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Multiple Choice

Earnings per share (EPS) is calculated as net income divided by the number of outstanding shares of a firm's common stock. Which of the following best represents the formula for basic EPS?

EPS = \frac{Net\ Income}{Weighted\ Average\ Common\ Shares\ Outstanding}

EPS = \frac{Net\ Income}{Total\ Liabilities}

EPS = \frac{Net\ Income}{Preferred\ Shares\ Outstanding}

EPS = \frac{Net\ Income}{Total\ Assets}

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Verified step by step guidance

Understand the concept of Earnings Per Share (EPS): EPS is a financial metric used to measure the profitability of a company on a per-share basis. It is calculated by dividing the net income attributable to common shareholders by the weighted average number of common shares outstanding during the period.

Identify the correct formula for basic EPS: The formula for basic EPS is EPS = \frac{Net\ Income}{Weighted\ Average\ Common\ Shares\ Outstanding}. This formula focuses on the net income available to common shareholders and excludes preferred shares or other liabilities.

Eliminate incorrect options: Review the other options provided in the problem. EPS is not calculated using total liabilities, preferred shares outstanding, or total assets. These metrics are unrelated to the calculation of EPS.

Understand the components of the formula: Net income refers to the company's total profit after all expenses, taxes, and costs have been deducted. Weighted average common shares outstanding accounts for changes in the number of shares during the reporting period, ensuring accuracy in the calculation.

Apply the formula in practice: To calculate EPS, divide the net income by the weighted average number of common shares outstanding. This provides a measure of how much profit is earned per share of common stock.