Question

Earnings per share: Select one: a. Will always be lower than the dividend paid per share b. Will always be higher than the dividend paid per share c. Is affected by a stock dividend distributed d. Is not affected by preferred stock or common stock issued

Answer 1

Answer:

b. Will always be higher than the dividend paid per share

Explanation:

A firm pays dividend to it's stockholders based upon it's earnings.

Earnings per share (EPS) is expressed as:

= $\frac{Earnings\ available\ to\ stockholders}{No.\ of\ stocks\ outstanding}$

Dividend payout ratio on the other hand is expressed as:

= EPS (1 - b)

wherein, b = retention ratio which denotes the percentage of earnings retained by a firm i.e not distributed as dividends.

Thus, a firm's earnings per share would always be higher than the dividend paid by it per share.