Don wants to compute the earnings per share for SFX Ltd. How does he do it?
A) Divide sales by the number of common shares outstanding
B) Divide cost of goods sold by the number of common shares
C) Divide net income by the number of common shares outstanding
D) Divide cost of goods sold by average inventory
E) Divide net income by sales

Question

Quizplus · Accepted Answer

Earnings per share (EPS) is calculated by dividing net income by the number of common shares outstanding. Therefore, the correct choice is C. A is incorrect because sales is not a measure of profitability. B is incorrect because cost of goods sold does not represent the earnings of the company. D is incorrect because it calculates the inventory turnover, which is different from EPS. E is incorrect because net income divided by sales ratio gives the profit margin, not EPS.

Don Wants to Compute the Earnings Per Share for SFX