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Earnings-per-share as an indicator of company health

More than ever before, tremendous attention is being paid to a company's earnings-per-share number. Why do you think investors and creditors pay so much attention to earnings per share? Is this focus on one measure reasonable? What are the pros and cons of this approach?

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The earnings-per-share figure is a reflection of a company or business' profits. Earnings on shares sold are paid on a percentage basis, based upon the profits a company posts - some annually, some quarterly, some at other specified time intervals. It is understandable that investors and creditors are so focused upon this number, because this is how investors earn money on their investment, and it is one measure of the company's health, so that creditors can be assured that they will be repaid.

However, this focus upon this one indicator is not always a genuine assessmant of the health of a business or company. Consider what happens when a successful business expands. Expansion is a good indication of the health of a company, when sales have improved such ...

Solution Summary

Discussion of earnings-per-share, definition, and discussion of why this particular indicator is not always an accurate indicator of the overall health of a company.