Multiple Choice
Which of the following formulas is used to compute basic earnings per share (EPS)?
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14. Financial Statement Analysis
Ratios: Earnings Per Share (EPS)
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If Smith Corporation reported a net income of $500,000 for the trailing 12 months and has 100,000 weighted average common shares outstanding, what is Smith’s earnings per share (EPS) for the period?
A
$0.20
B
$5.00
C
$50.00
D
$500.00
Verified step by step guidance1
Understand the concept of Earnings Per Share (EPS): EPS is a financial metric that measures the profitability of a company on a per-share basis. It is calculated by dividing the net income available to common shareholders by the weighted average number of common shares outstanding.
Identify the given values in the problem: Net income is $500,000, and the weighted average number of common shares outstanding is 100,000.
Write the formula for EPS: EPS = Net Income / Weighted Average Common Shares Outstanding.
Substitute the given values into the formula: EPS = $500,000 / 100,000.
Perform the division to calculate the EPS. The result will represent the earnings per share for Smith Corporation during the trailing 12 months.
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