Earnings Per Share (EPS) Formula Quiz

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What is the purpose of the Earnings Per Share (EPS) formula?

The purpose of the EPS formula is to indicate a company's ability to produce net profits for common shareholders.

How is EPS calculated?

EPS is calculated by dividing the net earnings available to common shareholders by the average outstanding shares over a certain period of time.

Why is EPS more valuable when analyzed against other companies in the industry?

EPS is more valuable when analyzed against other companies in the industry because it allows for comparison of profitability.

What does a higher EPS indicate between two companies in the same industry with the same number of shares outstanding?

<p>A higher EPS indicates better profitability between two companies in the same industry with the same number of shares outstanding.</p> Signup and view all the answers

In conjunction with what is EPS typically used to determine whether a company is relatively 'cheap' or 'expensive'?

<p>EPS is typically used in conjunction with a company's share price to determine whether it is relatively 'cheap' (low P/E ratio) or 'expensive' (high P/E ratio).</p> Signup and view all the answers