Question

Earnings available to common shareholders are defined as net profitsSelect one:a. after taxes.b. after taxes minus preferred dividends.c. after taxes minus common dividends.d. before taxes.

Answer 1

Answer:

The correct answer is b. after taxes minus preferred dividends.

Explanation:

Net profit: Add all the revenues of the firm and deduct all the expenses of the firm. If the amount come in positive, the firm earns profit else suffered loss.

In mathematically,

Net profit = Sales revenue - all expenses

The earning which is available to shareholders is net profit after paying preference dividend to preference shareholders.

As first we have to pay the dividend to preference shareholders then we distribute the income to equity shareholders.

In mathematically,

EBIT - taxes - Preferred dividend

Hence, the correct option is b. After taxes minus preferred dividends.