Earnings Per Share: But Why Is EPS Different if Income Is th
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But Why Is EPS Different if Income Is the Same?
Fredrica Brown has $200.000 that she plans to invest in growth stocks. She has narâ?¢ rowed her choices to two companies in the same industry, White Inc. and Adam Inc. Each company has a documented history of growth and an established,strong position within the industry. Last year, each company reported net income of $1 0 million and a return on ownersâ?¢investment of 17%; however,White reported EPS of $1.32,and Adam reported EPS of $2.75.
Fredrci a requests that you explain why the EPS differs when other measures of activ ity and profitability are similar. Wha t factors contribute to and limit the comparability of these data?
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Solution Summary
Your tutorial is 275 words and discusses basic EPS, diluted EPS and EPS for extraordinary items.
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Earnings per share (EPS), the minimum required computation on the face of the income statement is a function of three basic elements, net income, preferred dividends, and weighted average common shares outstanding. So, two firms with the same net income can have dramatically different EPS, as noted by Ms. Brown in the scenario above.
EPS:
Net income - preferred dividends
------------------------------------------
Weighted average common shares
So, if you insert the ...
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