Which of the following statements is correct?

Question

Quizplus · Accepted Answer

With an excellent profit record, investors are willing to pay more for a firm's stock, and this can cause the stock price to exceed its book value per share. This is often referred to as market value exceeding book value.

Option A is incorrect because a firm's DPS should not necessarily exceed its EPS. The relationship between DPS and EPS depends on the firm's dividend policy.

Option B is incorrect because EBITDA should always exceed EBIT since EBITDA is calculated by adding back depreciation and amortization to EBIT.

Option D is incorrect because depreciation is a non-cash expense that reduces earnings; thus, the more depreciation a firm has in a given year, the lower its EPS, other things held constant.

Which of the Following Statements Is Correct