Home › US CMA Part 2 › Financial Management › Using Financial Information and Accounting › Earnings per share tells an investor what?
Earnings per share tells an investor what?
AThe cash actually handed to each stockholder
BThe dollars earned by each share of stock
CThe market price paid for each share of stock
DThe dividend promised on each share of stock
Answer & Solution
Correct answer: B. The dollars earned by each share of stock
1. Earnings per share is the ratio of net profit to the number of shares of common stock outstanding.
2. It measures the number of dollars earned by each share of stock.
3. It is the amount earned by each share, not the amount actually given to stockholders as dividends.
4. Some earnings may be put back into the firm instead of paid out, which is exactly why the two figures differ.
5. Earnings per share is watched closely by investors and also indicates a firm's ability to pay dividends.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.7 Analyzing Financial Statements_
Related questions
What does a debt-to-equity ratio above 100 percent tell you about who is funding the firm?A bakery reports total liabilities of $70,150 and owners' equity of $78,750. What is its dHow is the debt-to-equity ratio calculated, and which direction is generally better?Why can no single inventory turnover value be called good for every firm?Cost of goods sold was $112,500, beginning inventory was $18,000 and ending inventory was How is the inventory turnover ratio calculated?What do activity ratios reflect?A bakery earned a net profit of $32,175 and has 10,000 shares of common stock outstanding.