All else equal, when the current stock price for a company's stock falls and net income falls:
A) EPS decreases and ROE increases.
B) EPS and ROE both decrease.
C) EPS increases and ROE decreases.
D) EPS and ROE both increase.

Question

Quizplus · Accepted Answer

When the stock price falls and net income falls, it means that the company's profitability has decreased. This results in a decrease in EPS (earnings per share) as there is less income to divide among the outstanding shares. Additionally, ROE (return on equity) decreases as net income is a key component of this metric. Therefore, both EPS and ROE would decrease in this scenario.

All Else Equal, When the Current Stock Price for a Company's