Critics of EPS as a measure of profitability point out that it does not consider:
A) simple capital structures.
B) the amount of assets or capital required to generate a particular level of earnings.
C) the deduction of preferred stock dividends from net income.
D) adjustments for dilutive securities and the adjustment to weighted average number of shares outstanding for complex capital structures.

Question

Quizplus · Accepted Answer

EPS only takes into account the earnings per share and does not consider the amount of assets or capital required to generate those earnings. This can lead to misleading information about a company's profitability. Critics argue that a better measure of profitability would take into account the return on assets or return on equity.

Critics of EPS as a Measure of Profitability Point Out