When a company uses excess cash to buy back some of its outstanding common shares,which of the following ratios will be affected directly in the manner described below?
A)The return on equity (ROE)will decrease.
B)Earnings per share (EPS)will increase.
C)The inventory turnover ratios will increase.
D)Sharpe's Ratio.

Question

Quizplus · Accepted Answer

When a company buys back its outstanding common shares, the number of outstanding shares decreases, which leads to an increase in the earnings per share (EPS) ratio. This is because the same amount of earnings is spread over a smaller number of outstanding shares. ROE and inventory turnover ratios are not directly impacted by share buybacks, and Sharpe's ratio is not relevant in this context.

When a Company Uses Excess Cash to Buy Back Some