In its most basic form,the Earnings per Share ratio is calculated as:
A)dividends paid on common shares divided by the average number of outstanding common shares.
B)net income divided by the average number of outstanding common shares.
C)total dividends paid divided by the average number of outstanding common shares.
D)net income divided by average shareholders' equity.

Question

Quizplus · Accepted Answer

The Earnings per Share ratio (EPS) is the amount of net income earned for each outstanding share of common stock. Therefore, the correct formula for calculating EPS is net income divided by the average number of outstanding common shares. Choices A and C only consider the dividends paid, but EPS is based on net income. Choice D is incorrect because it uses average shareholders' equity, which is not relevant for calculating EPS.

In Its Most Basic Form,the Earnings Per Share Ratio Is