EPS, and not Net Income, is the measure of firm returns that stockholders normally use in determining whether financial leverage is favorable or unfavorable.

Question

Quizplus · Accepted Answer

EPS (Earnings Per Share) is a measure of a company's profitability per outstanding share of common stock, which is directly relevant to stockholders. Net income is a measure of a company's total revenue minus expenses and does not provide information on profitability per share. Therefore, EPS is the preferred measure for analyzing whether financial leverage is favorable or unfavorable for stockholders.

EPS, and Not Net Income, Is the Measure of Firm