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3 years ago

All of the following statements are true regarding earnings per common share (EPS) except:

Business

1 answer:

SVEN [57.7K]3 years ago

8 0

Answer:

d) EPS cannot be calculated if a company has no preferred stock.

Explanation:

The above statement is untrue about E.P.S because the reason why 'Preferred dividend' (which is dividend on preference shares) is subtracted from Net Income, before being divided by the 'Average Number of Common Shares Outstanding' is for comparability.

Since the denominator is based on 'common shares' or 'ordinary shares', it makes sense not to include the part of income that has fallen to preferred shares.

As a matter of fact there are a lot of companies that do not have preferred stock and still report Earnings Per Share on their financial statements.

Finally, still on comparability; E.P.S helps to compare the performance of big companies that have preferred stock with small companies that do not have. Hence EPS can be calculated even when there is no preferred stock.

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UkoKoshka [18]

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3 years ago

Why or why not hats and hoods should be allowed in school

olasank [31]

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2 years ago

Which of the following accounts are classified as shareholders' equity?

vazorg [7]

The following accounts which are classified as shareholders' equity are Additional paid-in capital, Common stock ,Retained earnings.

Option A, B, C is correct.

<h3>Shareholder Equity:</h3>

Shareholder Equity is the amount invested in the business by the owner of the business. This includes the money they have invested directly and the accumulation of earnings earned by the company that has been reinvested since its inception.

<h3>Is equity a liability or an asset?</h3>

Equity is the company's total assets minus total liabilities. It can be defined as the total amount of dollars that a company would be left with if it liquidated all its assets and paid off all its liabilities. This is then distributed to shareholders.

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1 year ago

The order of presentation of activities on the statement of cash flows is

alisha [4.7K]

The answer is D. Operating, investing, and financing

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3 years ago

Read 2 more answers

Two online magazine companies reported the following in their financial statements: BetterWorth Outdoor Fun 2018 2017 2018 2017

Rudik [331]

Answer:

BetterWorth and Outdoor Fun ROE and P/E Ratio Analysis:

1-a) Computation of 2018 ROE for each company.

ROE = Return on Equity. It is a percentage of the net income over equity. It is best to use the average equity, if given two balance sheets. See explanation for further clarification.

Average Equity = Two balance sheets' equity divided by 2.

BetterWorth's Average Equity = (597,186 + 522,814) / 2 = 560,000

Outdoor Fun's Average Equity = (457,151 + 477,049) / 2 = 467,100

BetterWorth's 2018 ROE = 111,000 / 560,000 x 100 = 19.82%

Outdoor Fun's 2018 ROE = 92,420 / 467,100 x 100 = 19.79%

1-b) BetterWorth's appears to be generating greater returns on stockholders' equity in 2018. It generated 19.82% as against Outdoor Fun's 19.79%, especially with the use of average equity.

2-a) Computation of 2018 P/E Ratio for each company:

P/E Ratio = Price/Earnings Ratio. It is expressed as the market price per share divided by earnings per share.

BetterWorth's 2018 P/E Ratio = 54.90 : 3.4 = 16.15 : 1

Outdoor Fun's 2018 P/E Ratio = 33.05 : 2.30 = 14.37 : 1

2-b) Investors appear to value BetterWorth more than Outdoor Fun. This is because investors are ready to pay 16.15 times more for each unit of the earnings of BetterWorth. For Outdoor Fun, investors are only willing to pay 14.37 times more for each unit of its earnings.

Explanation:

A) ROE = Return on Equity. It is expressed as a percentage of net income over average equity. In the above calculations, we used the average equity. The reason is this: average equity smoothens the mismatch between the income statement and the balance sheet.

But, what does ROE measure? It measures a company's management effectiveness in using assets to make profits for shareholders.

Had we used the 2018 equity, Outdoor Fun would have appeared to have performed relatively better than BetterWorth over ROE.

B) P/E ratio relates a company's share price to its earnings. The P/E ratio shows that the company's stock is overvalued or undervalued. It depicts investors' confidence or lack of it in the company's ability to produce more or less earnings. Without earnings expectation, investors cannot price a company's stock highly. It is therefore a stock valuation tool widely used by financial analysts and investors.

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2 years ago