Earnings per share:
A)will increase if net income increases and the number of shares outstanding decreases.
B)will increase if net income decreases and the number of shares outstanding increases.
C)is defined as the addition to retained earnings divided by the number of shares outstanding.
D)is the total amount of dividends paid per year on a per share basis.
E)must increase at the same rate as the net income.

Question

Quizplus · Accepted Answer

Earnings per share (EPS) is calculated by dividing the company's net income by the number of shares outstanding. Therefore, EPS will increase if net income increases. Additionally, EPS will also increase if the number of shares outstanding decreases (because the earnings are being distributed among fewer shares). Thus, answer option A is correct. Option B is incorrect because it suggests that EPS will increase if net income decreases, which is not true. Option C is incorrect because retained earnings are not added to calculate EPS. Option D is incorrect because it describes the dividend per share, which is not the same as EPS. Option E is incorrect because while EPS often increases along with net income, it is not a fixed relationship and may be influenced by several other factors.

Earnings Per Share