A. Discuss uses of EPS and reasons or objectives for the current method of reporting EPS.
QUESTION
A. Discuss uses of EPS and reasons or objectives for the current method of reporting EPS.
Earnings per share are the amount of companys profit that is allocated to each outstanding share of common stock. It is an important indicator of the success or failure of a company. The formula for calculation earning per share is given by: Earnings per share = (Net Profit after Taxes Preference Dividends) / Number of Equity Shares Uses of EPS are Measure of profitability EPS is the best measure of calculating profitability of a company Comparability EPS of different companies can be compared in order to compare the profitability of the companies. Two companies can earn same amount of profit with different levels of equity. Calculating price of the share earning per share is one of the most important factor in calculating the price of the share. The earnings per share is
sed to calculate the price of the share. Calculating Price Earnings Ratio the price earnings ratio of the company is calculated with the help of EPS, the EPS is the denominator in order to calculate price earnings ratio. Reporting of earnings per share EPS must be presented for each period for which a statement of operations is constructed. Companies with simple capital structures are required to present only basic per-share amounts. Entities with complex capital structures are required to present both basic and diluted per-share amounts.
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