Accountants and financial analysts criticize earnings per share as a measure of profitability because it does
A)not consider the amount of shareholders' equity required to generate that level of earnings.
B)not consider the amount of liabilities required to generate that level of earnings.
C)consider the amount of assets required to generate that level of earnings.
D)not consider the amount of assets required to generate that level of earnings.
E)consider the amount of liabilities required to generate that level of earnings.

Question

Quizplus · Accepted Answer

Earnings per share only takes into account the net income earned by the company, without considering the assets or liabilities required to generate that income. This can lead to a distorted view of profitability, as a company may have high earnings per share but also have high debt or low asset turnover. Therefore, accountants and financial analysts often prefer to use other measures such as return on equity or return on assets to evaluate profitability.

Accountants and Financial Analysts Criticize Earnings Per Share as a Measure