Which one of the following statements is correct? Earnings per share is calculated as:
A)Profit after tax and dividend divided by the number of ordinary shares
B)Profit after tax but before dividend divided by the number of ordinary shares plus the number of preference shares
C)Profit after tax but before dividend divided by the number of ordinary shares
D)Profit after tax and dividend divided by the number of ordinary shares and preference shares in issue

Question

Quizplus · Accepted Answer

Earnings per share (EPS) is the portion of a company's profit that is attributed to each ordinary share. As such, it is calculated as the profit after tax but before dividend divided by the number of ordinary shares. Choice A includes the dividend, which should not be included in the calculation of EPS. Choice B includes the number of preference shares, which are not taken into account when calculating EPS. Choice D includes both ordinary and preference shares, which is not necessary when calculating EPS.

Which One of the Following Statements Is Correct? Earnings Per