Multiple Choice
JPMorgan Chase (JPM) has earnings per share (EPS) of \$3.75 and a price-to-earnings (P/E) ratio of 47. What is the current stock price?
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14. Financial Statement Analysis
Ratios: Earnings Per Share (EPS)
Multiple Choice
Which one of the following actions helps increase a company's Earnings Per Share (EPS)?
A
Repurchasing outstanding shares
B
Issuing additional common shares
C
Decreasing net income
D
Increasing operating expenses
Verified step by step guidance1
Understand the concept of Earnings Per Share (EPS). EPS is calculated using the formula: . It represents the portion of a company's profit allocated to each outstanding share of common stock.
Analyze the impact of repurchasing outstanding shares. When a company repurchases its shares, the number of outstanding shares decreases, which increases the denominator in the EPS formula. If net income remains constant, EPS will increase.
Evaluate the effect of issuing additional common shares. Issuing more shares increases the number of outstanding shares, which decreases EPS if net income remains unchanged.
Consider the impact of decreasing net income. A reduction in net income lowers the numerator in the EPS formula, which decreases EPS.
Assess the effect of increasing operating expenses. Higher operating expenses typically reduce net income, which in turn decreases EPS.
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