Which statement is correct?
A)Basic EPS increases the understandability of financial statements.
B)Basic EPS decreases the understandability of financial statements.
C)Basic EPS addresses the moral hazard information asymmetry.
D)Basic EPS can be calculated in different ways by different companies.

Question

Quizplus · Accepted Answer

Basic EPS (Earnings Per Share) is a financial ratio that indicates the amount of net income earned per share of common stock outstanding during a specific period. It helps investors and analysts understand the profitability of a company on a per-share basis. Therefore, including Basic EPS in financial statements increases the understandability of financial statements.

Option B is incorrect because Basic EPS actually enhances the understandability of financial statements.

Option C is partially correct because Basic EPS is a measure of financial performance, but it does not specifically address moral hazard or information asymmetry.

Option D is partially correct because different companies may use different approaches to calculate Basic EPS, but there are generally accepted accounting principles that provide guidance on how to calculate this ratio.

Which Statement Is Correct