Which of the following could not explain why a company has a lower quality of income ratio but a higher EPS than one of its competitors?
A)The company sells a higher percent of goods on credit.
B)The company has fewer shares of outstanding common shares relative to its net income.
C)The company earns a higher percent of net income from non-operating activities.
D)The company pays a higher dividend.

Question

Quizplus · Accepted Answer

A higher dividend payout would reduce the company's retained earnings, which are included in the denominator of the quality of income ratio. This would result in a lower quality of income ratio. However, a higher dividend would not necessarily affect the company's earnings per share (EPS). The other options (A, B, and C) could all potentially explain why a company has a lower quality of income ratio but a higher EPS compared to a competitor.

Which of the Following Could Not Explain Why a Company