Question

If Company A had earnings per share of $4 and Company B had earnings per share of $3, then it is accurate to conclude that Company A was more profitable. Group of answer choices

True

False

Answer 1

Answer

--FALSE.

--Earnings per share = Net Income / No. of common shares outstanding.
--Hence, EPS depends on Net Income and no. of common shares.
--Say if a company has a lower net income, and lower no. of common shares, its EPS can be higher.
--Consider the following example:

		Company 1	Company 2
A	Net Income	$10,000	$2,700,000
B	No. of shares outstanding	2000	900000
C = A/B	Earnings per share	$5	$3

--You can see that Company 2 has considerably HIGHER net income, but its EPS is only $3.
--hence ONLY EPS cannot be used to conclude if any company is more profitable than the other.