The following equation, (net income - preferred stock dividends)/number of shares of common stock outstanding,allows us to calculate the ________ and this information is necessary to calculate the ________ ratio.

Question

Quizplus · Accepted Answer

The equation (net income - preferred stock dividends)/number of shares of common stock outstanding calculates earnings per share (EPS), which is necessary to calculate the price-to-earnings (P/E) ratio. The dividend yield and stock growth do not directly involve EPS, and the market-to-book and book-to-market ratios involve the stock's market and book values, not earnings.

The Following Equation, (Net Income - Preferred Stock Dividends)/number of Shares